Keeping track of your company’s financial condition is an essential component of bookkeeping that is typically handled by certified public accountants (CPAs). The balance sheet and profit and loss statement are two critical parts of the financial statement that investors, creditors, and market analysts use to determine the performance, long-term viability, and profitability of your business. The guide below explains the main distinctions between these statements.

Balance Sheet

The balance sheet lists all of a company’s ownership at a specific point in time, including assets, liabilities, and shareholder’s equity. It is prepared on the last day of the financial year, usually by certified public accountants, to show the current financial position of a business.

This statement gives a brief overview of what the company owes and owns. It also shows investments by shareholders. This tells investors and creditors how effective a company is with managing its resources.

Balance sheets are divided into two sections: 1) Assets and 2) Equities and Liabilities. There are a few different calculations used throughout the statement, but the basic formula involves adding liabilities and owner’s equity to equal the sum of the company’s assets.

The balance sheet is named as such because of the way these three accounts tend to balance out and equalize. This statement shows the total value of a business or how much it is actually worth.

Profit & Loss Statement

Also known as an income statement, the profit and loss statement summarizes revenue and expenses over a certain period of time, usually a financial quarter or year. This represents an entity’s financial performance and reveals their ability—or inability—to generate a profit.

One of the key benefits of P&L statements is that they use operating and non-operating incomes and expenses to paint a full picture of an entity’s profits when they occurred.

Your certified public accountant will add up the company’s revenue on one side and expenses on the other, then subtract the total expenses—including costs of operation, taxes, interest, and goods sold—from the total revenue to reveal the profits or losses for the specified time period.

P&L statements show net income, meaning whether the company is in the red (negative earnings) or in the black (profitable). Interested parties, including investors, accountants, and market analysts use these statements to study cash flow and a company’s ability to pay back a loan.

Preparing accurate balance sheets and profit and loss statements can be challenging for busy business owners. If you need help with your financial statements and general bookkeeping, contact the experts at Hannegan & Associates. Located in Edgewood, KY, these certified public accountants have years of experience providing general accounting, financial planning, and tax services to businesses throughout the Tri-State area. They work with you to create custom solutions for your company and streamline your bookkeeping system, allowing you to focus on growing your business and increasing profits. Learn more about their bookkeeping services online. To connect with a reliable accountant, call (859) 291-0101.