A balance sheet and profit and loss account (also known as an income statement) are two financial statements used to assess the financial health of a business.
A balance sheet shows the financial position of a company at a specific point in time. It includes assets, liabilities, and equity. Assets are resources that the company owns, such as cash, property, equipment, and inventory. Liabilities are obligations the company owes, such as loans and accounts payable. Equity is the residual interest in the assets of the company after deducting liabilities.
On the other hand, a profit and loss account shows the company's revenue, expenses, and net income over a specific period, such as a month, quarter, or year. Revenue is the income generated by the company through its operations, such as sales of goods or services. Expenses are the costs incurred in generating that revenue, such as rent, salaries, and marketing expenses. Net income is the difference between revenue and expenses, which indicates the company's profitability.
In summary, the balance sheet shows a company's financial position at a specific point in time, while the profit and loss account shows the company's financial performance over a specific period. Together, these two statements provide valuable information for analyzing the financial health of a business.