Balance sheet vs income statement
Each, defined
Balance sheet
Balance sheet — Assets, liabilities and equity at a point in time, proving the accounting equation.
Side by side
| Balance sheet | Income statement | |
|---|---|---|
| Time | One date ('as at') | A period ('for the period ended') |
| Shows | Assets, liabilities, equity | Revenue, expenses, net income |
| Accounts | Carry forward | Reset each year |
Northwind's first month, both statements
Northwind Traders, Inc.'s September 2026: the income statement shows $31,500 of revenue and $2,550 of net income for the month; the balance sheet at 2026-09-30 shows $72,000 of assets, funded by $9,450 of liabilities and $62,550 of equity. (Northwind Traders, Inc., September 2026, accrual basis, USD.)
| Income statement, for the month | Amount | Balance sheet, at month-end | Amount |
|---|---|---|---|
| Revenue | 31,500.00 | Total assets | 72,000.00 |
| Cost of revenue | (17,000.00) | Total liabilities | 9,450.00 |
| Operating expenses | (11,950.00) | Total equity | 62,550.00 |
| Net income | 2,550.00 |
How they relate
The two are joined by retained earnings: each period's net income from the income statement is added to equity on the balance sheet. That link is why they must be prepared together.
Read alone, each misleads. A profitable income statement can sit beside a balance sheet running out of cash, which is what the cash flow statement is for.
Questions
- What links the two statements?
- Retained earnings, through net income.
- What is the third statement?
- The cash flow statement — it explains why profit and the change in cash differ.
Also confused with these
Definitions are the glossary’s, generated from the same documents. Figures in the examples are computed by tested functions, not typed. General information for US companies under US GAAP, not accounting or tax advice.