The Complete Guide to Difference Between a Balance Sheet And an Income Statement?

Content The Balance Sheet vs. The Income Statement What is an income statement? Assets Small Business Tax Guide on Business Expenses Differences Between the Income Statement and the Balance Sheet Cash flow from investing and financing Learn how they differ in reporting your business’s financial health Net loss or net operating loss refers to …

July 1, 2020


Net loss or net operating loss refers to the excess of the expenses incurred over the income generated in a given accounting period. It is evaluated as the difference between revenues and expenses and recorded as a liability in the balance sheet. 4 Differences Between Operating And Net ProfitOperating profit is derived from gross profit and is the income left after deducting all expenses and costs incurred in the operation of the business. Net profit, on the other hand, is the remaining income after accounting for all cash flows, which can be positive or negative. A company adopts strategies to reduce costs or raise income to improve its bottom line.


The three core financial statements are 1) the income statement, 2) the balance sheet, and 3) the cash flow statement. Once expenses are subtracted from revenues, operating revenue remains. To find net income, a company subtracts other costs not already included. For example, those costs may include interest expense and tax payments. Net income is the bottom line shown in the final line of the income statement. If net income is negative, the company has lost money for the period. The P&L statement is one of three key financial statements a business releases, either quarterly, annually, or both if it’s a public company.

The Balance Sheet vs. The Income Statement

Current liabilities have due dates within the next year, and long-term liabilities are due farther in the future. A vertical analysis involves creating ratios and percentages for each line item in a financial statement using a baseline item. The ratios calculated in a vertical analysis allow FP&A analysts to compare a company’s performance across different periods and the performance of various companies in the same period. The balance sheet and income statement are prepared from journal entries and financial records generated in carrying out the operations of a business. They are useful and important financial documents that differ in many ways but are used as complementary documents for analyzing a company. The company’s journal entries feature assets and liabilities. As a result, a company calculates shareholder equity by taking total assets minus liabilities.

Namely, Balance Sheet vs Income Statement statements cover extended periods, while a balance sheet can only ever document your position on a single date. Unlike balance sheets, income statements capture information over time, so even one of them can help you analyze your company’s trends. However, it’s still a good practice to compare them across multiple periods.

What is an income statement?

By looking at an income statement, you can easily tell whether a business was profitable or not profitable within a specific period. If total revenue is greater than total expenses, this means the business was profitable. If total revenue is less than total expenses, this means the business was not profitable. Some businesses can afford to not generate a profit for a while, but regardless, it is important for all business owners to know exactly where they stand. The shareholder’s equity column represents everything else that is left over.

  • Liabilities include accounts payable, taxes owed, unearned revenue, bonds payable, wages, payroll, and any loans or lines of credit the business is responsible for.
  • J.C. Penney is a great example of the importance of looking at the complete financial picture.
  • Consequently, it can help managers identify problems reducing profits and opportunities for increasing profits.
  • Bench assumes no liability for actions taken in reliance upon the information contained herein.
  • DSCRDebt service coverage is the ratio of net operating income to total debt service that determines whether a company’s net income is sufficient to cover its debt obligations.

An income statement is used to track profits and losses in business transactions to record revenue and expenses during a given period. Income statements are considered for loans and investment decisions to see if the business is profitable or needs economic help. You can list these formulas in your skills section to imply your knowledge of balance sheets, or you can list “financial statements” as a skill on its own.

Contact us

We’d love to hear from you

Email us with general questions and comments. For serious eye care questions, please call us or schedule an appointment online.