3.17 The Balance Sheet versus the Income Statement: A Summary

The Balance Sheet 

  • Static (photograph)
  • “As of” a specified date
  • Numbers go up or down
  • Numbers never turn back to zero
  • “Current” means less than one year – versus “long-term”
  • A = L + E or A – L = E

The Income Statement

  • Statement of Revenues (Addition) and Expenses (Subtraction)
  • Flow (moving picture)
  • Cumulative
  • Numbers only go up with time – except for net numbers (and adjustments)
  • For the period (quarter, half-year, three quarters, or full year) ending….
  • The Income Statement is closed out at year-end:
    • The Addition to Retained Earnings is zeroed out (debited) and transferred to the Balance Sheet (credited) – to Retained Earnings in the Equity section
  • Then, the Income Statement’s numbers all revert to zero – the “odometer” is returned to zero.
  • One may think of the income statement as a sub-part of the equity section of the balance sheet.

 

A bashful person cannot learn.
Ethics of the Fathers 2:6

 

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Introduction to Financial Analysis Copyright © 2022 by Kenneth S. Bigel is licensed under a Creative Commons Attribution 4.0 International License, except where otherwise noted.

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