Comparison between a Balance Sheet and an Income Statement Essay

Comparison among a Balance Sheet and an Income Statement - 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 need this teaching 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 run 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 two pecuniary statements are two different statements, they are closely related in that, a companys profit and loss statement directly affect the shareholders equity. In the event that a company stick on $30,000 increase owners equity compared to the previous year and the owner did not inves t or withdraw assets from the business, then the increase represents the benefit 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 If the owner had withdrawn $15,000 in assets for personal use, then the net income must have been $45,000 to produce the $30,000 increase in shareholders equity.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 utile in determining the sustainability of a company as it outlines a companys assets in comparability to the liabilities. The relationship between a balance sheet and an income statement is a result of the double immersion system that prescribes Assets = Liabilities + Owners Equity.