Over the years, I have found that clients connect with their Profit & Loss statement and have at the very least, a working knowledge of what it all means. But everyone asks me what the Balance Sheet is all about. So I thought I would give you a bit of a comparison and some insight into why your Balance Sheet is just as important as your Profit & Loss statement!
The Balance Sheet is prepared at a particular date and it's numbers represent a year to date (YTD) representation, while the Profit and Loss statement is prepared for a particular period such as a fiscal year, quarter or month.
The Balance Sheet reveals the entity’s financial position, whereas the Profit and Loss statement discloses the entity’s financial performance.
A Balance Sheet gives an overview on assets, equity and liabilities of the company, but the Profit and Loss statement is a depiction of entity’s revenue and expenses.
The major difference between the two reports is that the Balance Sheet is a snapshot of the business's assets, liabilities and equity at a specific point in time, while the Profit & Loss statement summarizes a business's revenues, costs, and expenses during a specific period.
The Balance Sheet is prepared on the basis of the balances transferred from the Profit and Loss statement. In essence, the Profit and Loss statement is a part OF the Balance Sheet. In the equity section, there will be a Current Earnings listed and this should match your Profit & Loss net income or loss (the bottom line. So in other words, your financial position as shown by the Balance Sheet, includes your financial performance from your Profit & Loss. The two statements are forever linked.
If you would like to discuss further, Email kim@cpakm.ca or visit the website (www.cpakm.ca) and book a call today!