Compare balance sheet and profit and loss account

Balance sheet is also called a position statement. It consists of assets, liabilities of owners and company. On the other hand, a profit and loss account is called an income statement. It shows the company's earned revenue and sustained expenses during the respective financial year.

Both are part of a financial statement and are useful for the parties such as investors, financial institutes etc. to know a company's profitability, financial position and overall performance. By analysing these, they can make decisions regarding investing or for approving the loans.

Balance sheet

It shows the financial position of a company. Also, it consists of assets on the left hand side and liabilities and equity on the right hand side.

Assets are of two types namely, current and noncurrent assets. Assets which are convertible into cash in twelve months are called current assets. Examples are stock, bills receivable, debtors, marketable securities etc.

Non-current assets are again divided into types namely tangible assets and intangible assets. Physical assets of a company are called tangible assets (building, furniture, machinery etc.). Non-physical assets of a company are called intangible assets (patents, goodwill etc.)

On the right hand side, that is equity and liability side, it shows shareholders' funds, current and non-current liabilities. Shareholders' fund consists of equity, reserve and surplus.

Current liabilities are those liabilities paid in twelve months (bills payable short term loans etc.). Non-current liabilities are those liabilities paid for years or more than 12 months (bonds, long term borrowings etc.)

Profit and loss account

It is also called a statement of revenue and expenses and represents the financial position of a certain period. In this, net sales are recorded by deducting good sales and resulting in gross profit.

Now, operation profits are calculated by deducting office and administration, selling and distribution charges from gross profit. After that, the net profit or loss is calculated by adding operating profit and deducting operating expenses from the operating profit.

If the resulting figure is positive, then they can say that the company is in profit otherwise, it is in loss (if the figure is in negative).