Balance sheet & Profit/Loss Statement

The balance sheet, and profit and loss statement are two of the three financial statements companies issue regularly.

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Balance Sheet vs. Profit and Loss Statement: An Overview

The balance sheet, and profit and loss statement are two of the three financial statements companies issue regularly. Financial statements provide an ongoing record of a company's financial condition and are used by creditors, market analysts, and investors to evaluate a company's financial soundness and growth potential. The third financial statement is called the cash-flow statement.

Although the balance sheet, and the profit and loss statement (P&L) contain some of the same financial information including revenues, expenses, and profits, there are important differences between the two of them. Here's the main difference: The balance sheet reports the assets, liabilities, and shareholders' equity during a specific period, while a company's revenues, costs, and expenses during a quarter or fiscal year is summarized in a P&L statement.

Balance Sheet

A balance sheet reports a company's assets, liabilities, and shareholders' equity at a specific point in time. It provides a basis for computing rates of return and evaluating its capital structure. This financial statement provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders.

The balance sheet shows a company's resources or assets, and also shows how those assets are financed—whether that's through debt under liabilities, or through issuing equity as shown in shareholder's equity. The balance sheet provides both investors and creditors with a snapshot as to how effectively a company's management uses its resources. Just like the other financial statements, the balance sheet is used to conduct financial analysis and to calculate financial ratios.

Profit and Loss Statement

A profit and loss statement (P&L), often referred to as the income statement, is a financial statement that summarizes the revenues, costs, and expenses incurred during a specific period of time, usually during a fiscal quarter or year. These records provide information about a company's ability—or lack thereof—to generate profit by increasing revenue, reducing costs, or both. The P&L statement is also referred to as the statement of profit and loss, the statement of operations, the statement of financial results, and the income and expense statement.

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