Comparison between a Balance Sheet and an Income Statement Essay

Comparison between a Balance Sheet and an Income line - Essay ExampleA balance sheet follows the general structure of Assets = Liabilities + Owners Equity, which means that the summation of all assets must equal the liabilities and shareholders equity. Investors and company management pick up this information to determine the current value of a company. An income statement, like the balance sheet, shows the value of the company because it shows whether the company is operating at a loss or at a profit. An income statement portrays a company revenues vis a vis the expenses, gains, and losses after taxation for a specific period of time, be it annually, monthly, quarterly, or semiannually. Although the dickens financial statements are two different statements, they are closely related in that, a companys profit and loss statement in a flash affect the shareholders equity. In the event that a company posted $30,000 improver owners equity compared to the previous year and the owner did not lay or withdraw assets from the business, then the increase represents the net income for the year. If the owner had withdrawn $15,000 in assets for personal use, then the net income must have been $45,000 to produce the $30,000 increase in shareholders equity. A balance sheet is more useful in determining the sustainability of a company as it outlines a companys assets in comparison to the liabilities. The relationship between a balance sheet and an income statement is a result of the double entry system that prescribes Assets = Liabilities + Owners Equity.