Free

Comparison between a Balance Sheet and an Income Statement - Essay Example

Comments (0) Cite this document
Summary
From the essay "Comparison between a Balance Sheet and an Income Statement," it is clear that the relationship between a balance sheet and an income statement is a result of the double entry system that prescribes Assets = Liabilities + Owner’s Equity…
Download full paperFile format: .doc, available for editing
GRAB THE BEST PAPER92.3% of users find it useful
Comparison between a Balance Sheet and an Income Statement
Read TextPreview

Extract of sample "Comparison between a Balance Sheet and an Income Statement"

Comparison between a Balance Sheet and an Income ment Comparison between a Balance Sheet and an Income Statement
Introduction
An income statement, on the other hand, shows how much money a company gained or lost during a particular period. Additionally, it enables managers to determine sources of profits or losses. A balance sheet is a reflection of a company’s assets, liabilities, and shareholders’ equity at the end of a given financial year. A balance sheet enables managers to determine the financial position of a company. Hence, a balance sheet is more useful in determining the sustainability of the business compared to an income statement.
Discussion
Difference
A balance sheet follows the general structure of Assets = Liabilities + Owners’ Equity, which means that the summation of all assets (short term or long term) must equal the liabilities and shareholders’ equity. Investors and company management need this information to determine the current value of a company.
An income statement, like the balance sheet, shows the value of the company because it shows whether the company is operating at a loss or at a profit. An income statement portrays a company revenues vis a vis the expenses, gains, and losses after taxation for a specific period of time, be it annually, monthly, quarterly, or semiannually.
Relationship
Although the two financial statements are two different statements, they are closely related in that, a company’s profit and loss statement directly affects the shareholders’ equity. In the event that a company posted $30,000 increase owner’s equity compared to the previous year and the owner did not invest or withdraw assets from the business, then the increase represents the net income for the year. However, if the owner had withdrawn $15,000 in assets for personal use, then the net income must have been $45,000 to produce the $30,000 increase in shareholders’ equity.
Conclusion
A balance sheet is more useful in determining the sustainability of a company as it outlines a company’s assets in comparison to the liabilities. The relationship between a balance sheet and an income statement is a result of the double entry system that prescribes Assets = Liabilities + Owner’s Equity. Although these statements appear different, they both represent the value of a company.
References
Fraser, L., & Ormiston, A. (2001). Understanding financial statements. Upper Saddle River, N.J.: Prentice Hall.
Kimmel, P., Weygandt, J., & Kieso, D. (2007). Financial accounting. Hoboken, NJ: John Wiley.
Robinson, T. (2009). International financial statement analysis. Hoboken, N.J.: John Wiley & Sons. Read More
Cite this document
  • APA
  • MLA
  • CHICAGO
(“Comparison between a Balance Sheet and an Income Statement Essay”, n.d.)
Comparison between a Balance Sheet and an Income Statement Essay. Retrieved from https://studentshare.org/finance-accounting/1701044-comparison-between-a-balance-sheet-and-an-income-statement
(Comparison Between a Balance Sheet and an Income Statement Essay)
Comparison Between a Balance Sheet and an Income Statement Essay. https://studentshare.org/finance-accounting/1701044-comparison-between-a-balance-sheet-and-an-income-statement.
“Comparison Between a Balance Sheet and an Income Statement Essay”, n.d. https://studentshare.org/finance-accounting/1701044-comparison-between-a-balance-sheet-and-an-income-statement.
  • Cited: 0 times
Comments (0)
Click to create a comment or rate a document

CHECK THESE SAMPLES OF Comparison between a Balance Sheet and an Income Statement

Balance sheet

...? BALANCE SHEET Table of Contents Table of Contents 2 Introduction 3 2.Balance Sheet Items 3 2.1Assets 4 2 1Fixed Assets 4 2 2Current Assets 6 2.2Liabilities 8 2.2.1Current Liabilities 9 2.2.2Long-term Liabilities 9 2.2.3Shareholders’ Funds 9 3.Dual Aspect of Balance Sheet 10 4.Application of Balance Sheet 10 5.Balance Sheet – A Comparison between US and UK System 11 6.Conclusion 12 References 13 1. Introduction This study entails about the balance sheet and its components. Balance...
10 Pages(2500 words)Essay

Balance sheet

...?Memo It is worth mentioning that Superior Foods is overall in a strong financial position during the mentioned fiscal year of 2003. After reviewing the balance sheet of the company, I would like to pinpoint that the company’s total current assets recorded a cumulative increase of 13 – 15% from 2001 to 2003, whereas the total current liabilities increased by over 22% in the corresponding period. This is attributed to heavy growth in Accounts Payable as a result on greater purchases on credit. Nevertheless, the credit sales of company increased by just under 14%. Cash and cash equivalents also recorded a reasonable increment of 13% approximately from 2001 to 2003. However, the major underlying problem of...
2 Pages(500 words)Essay

Income statement and balance sheet

...?The business community has more accumulated wealth that the governments of the over 200 countries in the world combined. There are thousands of publicly traded companies been traded on Wall Street and international markets such as the London Stock Exchange every day. Due to the importance of these capital markets there is a need for professionals dedicated to financial reporting. Publicly traded companies have to prepare financial statements every accounting period. The normal accounting period is one year, but most companies also release quarterly financial statements. The four major financial statements are the income statement,...
3 Pages(750 words)Essay

Balance sheet

...conditions. Cash is one the most prominent part of balance sheet because it fulfils the immediate needs and helps a company meet its day to day expenditures and pay off its short term debt. Balance sheet also displays the short and long term liabilities of a company. The difference between the total assets and total liability constitute the value of a company (Making Sense of Financial Statements, 02.03.07). The liabilities portion of balance sheet introduces to users the company's position with respect to short and long term debt which suggest whether or not the company is nearing bankruptcy....
6 Pages(1500 words)Essay

Distinguish between accounts that are presented in the income statement and balance sheet

...Finance and Accounting Finance and Accounting To answer the question it’s good first to understand the difference between a balance sheet and an income statement. Balance sheet is a statement of account that describe the overall position of a business within a specified period of time, but it can also describe the overall position of the business from start of business to the that present time, while an income statement describes the current year performance, it details the current year profit margin. Income statement is also known as...
2 Pages(500 words)Essay

Operating (income) statement, statement of cash flow and balance sheet

...Operating (income) ment, ment of cash flow and balance sheet MEMORANDUM Lawrence Higgins, President of the Board of Trustees RE: Course of Action for Van Buren Community Hospital DATE: I have seen the auditors’ report and accompanying financial statements for the hospital. In anticipation of the April meeting of the board, I would like to bring to your attention the following three concerns: 1. (Regarding the hospitals revenues and expenses): The hospitals revenues are not enough to meet the expenses and therefore it is incurring losses of $(411,522) in 2004 and $(630,399) in 2003. The efficiency ratio calculated comes to 1.29 in 2004 and 1.65 in 2003. The efficiency ratio measures efficiency of a company in generating revenues... ...
2 Pages(500 words)Personal Statement

Analysis of balance sheet and income statement

...Analysis of Income ment and Balance Sheet Task Introduction This paper presents to the reader the analyses of income ment and the statement of financial position of two rival companies (AMEC and Carillion Corporation) based on the latest available annual report (for the year 2013). The key items focused on during the financial statement analysis are Assets and revenues. Other factors included in the paper are the products offered, the key market, and the ratio analysis (ROCE and debt/equity ratio). A brief description of the companies AMEC plc, headquartered in London, United Kingdom, was established in 1982. The company offers...
2 Pages(500 words)Essay

Pro Forma Income Statement and Balance Sheet

...%. therefore, the forecasted sales level for 2014 will be; S1= S0(1 + g) = $2,631,851(1 - .0235) = $2,570,003 Where S1 = the forecasted Sales level, S0 = the current Sales level, and g = the forecasted growth rate in Sales. After determining the sales forecast, the income statement and balance sheet accounts that vary directly with Sales are determined by multiplying the percentages by the Sales forecast. The accounts that do not vary directly with Sales are transferred to the Partial Pro-Forma Financial Statements without adjustments. External Financing Needed The last step of constructing the pro forma financial statements is...
2 Pages(500 words)Essay

Income Statement And Balance Sheet

...Income ment And Balance Sheet Both the income ment as well as the balance sheet provides answers to two questions together. These financial statement provides insight regarding how well did an organization perform in a particular period or accounting cycle and the assets as well as the liabilities that a particular company owes or has ownership off. Both the financial statement has various elements in common that are exhibited through different headings. The answer to the question that how well a company has performed during a particular accounting cycle is exhibited under the heading of an...
1 Pages(250 words)Article

Balance Sheet, Income Statement and Objectives of Accounting and Firms

...Assignment Accounting software can help keep accurate accounting records but in order to enter the data you have you must understand the differencebetween debits and credits. The rule of credits and debits varies for different accounts and basically add to or subtract based on the account. Here is an explanation based on the balance sheet and income statement: Balance Sheet Asset accounts comprise of cash, inventory, accounts receivable and other current assets, as well as fixtures, equipment, buildings and other fixed assets all increase with a debit and credits decrease the assets. Contra Asset accounts are accounts that are offsetting...
5 Pages(1250 words)Assignment
sponsored ads
We use cookies to create the best experience for you. Keep on browsing if you are OK with that, or find out how to manage cookies.

Let us find you another Essay on topic Comparison between a Balance Sheet and an Income Statement for FREE!

Contact Us