Balance Sheet and Income Statement: Similarities and Differences

The balance sheet and income statement They are often essential tools and records that provide a clear overview of a company's financial situations.

A balance sheet, determines in a summarized way the assets, liabilities and capital of a company that is owed to the owners, also explains the net value that the company comprises. Generally the balance sheet is made at the end of a specific period, because it shows the necessary information at a certain time.

An income statement, is among the top financial documents that track business performance and for analysts to determine the value of a business. Income and expenses can be detailed within this financial statement separately and then added to give a net income for a period.

Similarities Between Balance Sheet and Income Statement

Despite balance sheet and income statement they have a lot of differences, they have some similarities like the following:

• Both the balance sheet and the income statement are considered as part of the three most important financial statements, together with the cash flow statement. They are the fundamental documents in the execution of any commercial operation.
• Both are used to evaluate different information, however, they agree that the two play a role. essential for investors, as they offer adequate indications related to the current and future financial health of a company.
• These two tools together with the cash flow statement, although they are used in different ways, creditors and Investors use them when making the decision whether or not to get involved to participate financially with the business.

Differences between balance sheet and income statement

Between balance sheet and income statement of a company There are a lot of key differences that are included in the following:

1.Time

While the balance sheet shows the financial activity at a certain time to know what the company owns financially, the income statement shows the financial activity of the total income and expenses for a period of time specific.

2. Report items

Both report different data, the balance sheet usually reports on the assets, liabilities and stockholders' equity of a company, while the income statement reports on the income, expenses of a company and the gains or losses that gender.

3. Credit capacity

Lenders use the balance sheet in order to check if they should approve a higher credit, however they use the income statement for decision making as to whether the company obtains the necessary profits to pay its Passives.

4. Applications

The balance sheet is used to specify whether a company has sufficient liquidity to meet its obligations and the income statement is used to evaluate the general results of the financial performance of the company or the profit it has generated and find any type of financial or operational difficulty that requires be corrected.

5. Performance

One of the key differences between the balance sheet and the income statement is that only the income statement can show the performance, while the balance sheet cannot show how the actual financial situations of a company compare with its projections.

6. Nature

The nature of a balance sheet is usually static, as it is immediate within a point in time, while the income statement is totally dynamic and can even investigate the movements financial

7. Metrics

The items in a balance sheet can be used to understand the liquidity of the company, but the items in an income statement are They can compare with the amount of sales in order to get what is the gross margin, net income and operating income of the business.

The balance sheet and income statement Although they mostly contain different purposes, they are similar in some ways. Each of them is considered part of the three most relevant financial statements and indicates effective finances and allows comparison of various markets and companies. If you are interested in seeing other topics, you can visit our website.

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