Question

What is the difference between a balanace sheet and a net income sheet?

Answer 1

Difference between Balance sheet and Net income sheet

(i) Contents- Balance sheet contains assets and liabilities of the business whereas Income sheet contains expenses, losses, incomes and gains of the business.

(ii) Time period- Balance sheet is prepared as at a particular date i.e at the end of a quarter, half year or a year but income statement is prepared for a particular time i.e. for a quarter, half year or a year.

(iii) Results- Balance sheet shows financial status of the business at a particular date i.e. what the firm owns and owes wheras income statement shows trading results of the business for a particular time period.

(iv) Ratios- Liquidity and solvency ratios like current ratio, liquid ratio, debt equity ratio, debt ratio etc. can be calculated from the balance sheet whereas profitability and turnover ratios like Gross profit ratio, net profit ratio, Inventory turnover ratio etc can be calculated from the income statement.

(v) Alternate names- Balance sheet is also known as statement of financial position or position statement whereas Income statement is also known as Profit and loss statement.