Most probably, you would have made blunders while making a balance sheet and income statement. Both of them are not equally demanding, however, you need to understand the difference between how a balance sheet can affect your income statement. Today, we’ll discuss balance sheet and income statement examples that ultimately needed to proceed at the month’s end.
Whether you are running a small business or you have a huge industry, you will have to analyze the balance sheet to make an income statement. Transaction affects directly both of these terms whenever you need to make a sale or an expense for bookkeeping. Do you know that three major financial statements include income statements and balance sheets that a small business tends to report on financial performance?
Income Statement Overview
As you know, an income statement consists of all the profit and loss along with revenues of business and expenses that are made overall for a certain period. In an income statement, you may find the following line items:
Sales: In the sales line, you can include revenue generated from goods and services.
General and Administrative Expenses: These add utilities, rent, salary, etc.
Cost of Goods Sold: It includes labor and material costs.
Gross Profit: It includes the subtracted cost of goods from sales.
Earnings Before Tax: It contains the income of your business you made before tax.
Net Income: In the net income, you will find the net revenue subtracted from net expenses that make a profit or loss.
In general, the main purpose of an income statement is to conclude the net income of a business made for a certain period. When the net income comes up as a positive number, you will definitely have profit. On the other hand, when it is a negative number, you may suffer loss.
Balance Sheet Overview
With a balance sheet, you can have assets, liabilities, and equity of business given at a certain time. You will notice a balance sheet appears in two major parts; assets as the first part and liabilities & equity as the second part. Also, note that a balance sheet format must be equal to one another and it includes the following line items:
Current Assets: These include assets that you have not converted into cash within a year such as accounts receivable, prepaid expenses, and inventory.
Current Liabilities: These include debts that a business holds within a year such as utilities, rent, taxes, and payroll.
Long-term Liabilities: It may add long-term business loans, and pension fund liabilities.
Long-term Assets: It will add assets that you have not changed into cash within a year such as land, buildings, and other equipment.
Account Balance: It includes the amount of money available in your account once the debits and credits are made. You may count any checking accounts or long-term savings accounts.
Shareholders Equity: It includes the total assets of a business such as profit that a business gained and donated capital.
Example of a Balance Sheet
Let’s understand the phenomenon using an example of ExxonMobil’s balance sheet made for the fiscal year 2021 and reported on Dec. 31, 2021.
It includes:
Net equity worth of $175.7billion
Net assets worth $338.9 billion
Net liabilities worth $163.2 billion
Net liabilities and equity worth of $338.9 billion equals the net assets for the time
Example of an Income Statement
Following the above-mentioned example, let’s find out what is in the income statement:
Net revenue worth was $276.7 billion
Net Costs worth were $254.4 billion
On the whole, the net income was $23 billion.
Difference between an Income Statement and Balance Sheet
You will find out different data holding accounting details of the business from the income statement and balance sheet. You may notice the main difference between the two reports:
Line Items Reported: It includes expenses, profit or loss, income statement reports revenue, and the balance sheet reports assets, liabilities, and shareholder equity.
Timing: For timing, the income statement reports on the financial performance needed in a certain period maybe after a month, quarter, or yearly.
Metrics: On the income statement, the line items are used for sales figure that helps in figuring out the gross margin of a company. Moreover, it also helps in finding net income, and operating income in terms of percentages. Using the line items, you can comprehend the liquidity of the business.
Summary
In this post, you have learned the main differences between a balance sheet and an income statement example. Both line items are useful that’s why you need to realize the importance of both.
