Understanding Financial Statements: A Guide for Business
Owners
Profit and Loss Account
Introduction to profit and loss statements
The income statement illustrates a company’s profitability.
It provides a summary of a company’s revenues, expenses, and Profit/losses over a
given period of time.
It shows a company’s ability to generate sales, manage expenses, and create
profits.
It is prepared based on accounting principles that include revenue recognition,
matching, and accruals, which makes it different from the cash flow statement.
Balance sheet
Introduction to Balance Sheet
The balance sheet displays the company’s total assets and how the assets are
financed, either through debt or equity.
The balance sheet is one of the three fundamental financial statements and is key
to both financial modeling and accounting
It can also be referred to as a statement of net worth or a statement of financial
position.
How is Profit and Loss Account and Balance sheet related;
