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Financial information offers a case study in how a company prepares and publishes its economic data. Investors, regulators, and the general public rely on financial information to assess the condition of the company. The income statements and balance sheet help corporate financiers to lift the veil on the profitability and solvency of companies.
Definition
A balance sheet is also known as a statement of financial position or statement of equity position. This accounting report shows the mix of resources that a business uses to produce goods, provide services, or both. A statement of financial position also indicates the total debts that the company accumulates through its operations. The income statement is also known as a profit and loss (P&L) statement or income statement. An income statement shows corporate income and expenses. For example, Analysis of a company’s income statement allows investors to take a look at corporate operations.
Differences
The main difference between a balance sheet and an income statement is in the components of the reports. A balance sheet indicates business assets, equity, and liabilities. Assets are the resources used in the general operation of the entity. Examples of this include cash, accounts receivable and inventories (which are short-term assets) and long-term or fixed resources (equipment, for example). Liabilities are the debts that a borrower must pay. Some examples include bonuses payable, wages owed, and accounts payable. Bonds payable are long-term debts, since they are due after one year, unlike current debts that are within 12 months (accounts payable, for example). Social capital represents the investments of the shareholders of a company.
Similarities
Corporate bookkeepers rely on the same set of record keeping rules to translate operating operations into performance data summaries. They debit and credit the financial accounts, which are the components of the balance sheet and income statement. Accounting managers use similar programs to automate financial information. This includes document management software, financial review applications, financial accounting, analysis and reporting software, also called FAARS; and accounts receivable and payable management software.
Connection
Although the income statement and the balance sheet are different concepts, investors do not disassociate them when analyzing corporate data. Financial analysts also take a look at a company’s global economic data, including accounting reports. These include a statement of cash flows and a report on shareholders’ equity. The statement of cash flows, also known as the liquidity report, indicates the liquidity movements of the company in operation, investment and financing.