Difference Between Balance Sheet and Financial Statement

Difference Between Balance Sheet and Financial Statement

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Chanchal
Chanchal Aggarwal
Senior Executive Content
Updated on Dec 24, 2023 00:57 IST

The main difference lies in their focus and scope. A balance sheet offers a snapshot of a company’s financial position at a specific moment, detailing assets, liabilities, and equity. On the other hand, financial statements comprise a broader set of reports. It includes the balance sheet, income statement, cash flow statement, and statement of changes in equity.   2023_03_Copy-of-Feature-Image-TemplatesJJ-2.jpg

A balance sheet is a financial statement that reports a company’s financial position at a specific time. In contrast, a financial statement is a broader term that encompasses several different types of financial reports that provide information about a company’s financial performance, position, and cash flow over some time. Together, these financial statements provide a comprehensive view of a company’s financial health and are an essential tool for investors, creditors, and other stakeholders. However, there are certain difference between Balance Sheet and Financial Statement. Let’s understand them.

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Table of Content

Comparative Table: Between Balance Sheet and Financial Statement

Parameter Balance Sheet Financial statements
Period A balance sheet is a snapshot of a company’s financial position at a specific time. Financial statements summarize a company’s financial performance over a while.
Format A balance sheet is typically presented in a vertical format, Financial statements are typically presented in a horizontal format.
Purpose The purpose of a balance sheet is to provide information on a company’s financial position. Financial statements provide information on a company’s financial performance.
Components A balance sheet contains information on a company’s assets, liabilities, and equity. Financial statements typically include income statements, cash flow statements, and balance sheets.
Content A balance sheet only shows a company’s financial position. Financial statements provide company revenue, expenses, and cash flow information.
Analysis Balance sheets are often used for ratio analysis, such as calculating a company’s liquidity or solvency. Financial statements are used for trend analysis, such as comparing performance over time.
Audience Investors, creditors, and other stakeholders often use balance sheets to evaluate a company’s financial health. Investors, analysts, and management use financial statements to make decisions and evaluate performance.

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What is Balance Sheet?

An organization’s balance sheet is a financial statement indicating its financial position at any given point in time. Another name for this is a statement of financial position.

The balance sheet reflects a company’s assets, liabilities, and equity information. A company owns or has control over assets such as cash, investments, inventory, property, and equipment. A company owes liabilities to others, such as loans, accounts payable, and taxes. Equity shows the residual interest in the company’s assets after deducting liabilities.

The balance sheet follows the accounting equation, which states that assets must always equal the sum of liabilities and equity. This equation must balance the balance sheet to be accurate, hence the name “balance sheet”.

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What is a Financial statement?

A financial statement is a formal report that provides information about an organization’s financial performance, position, and cash flow. It is typically prepared by a company’s accounting department and is used to communicate financial information to stakeholders that are external to the company such as investors, creditors, and regulatory agencies. Financial statements typically include a balance sheet, income statement, and statement of cash flows and are an important tool for evaluating a company’s financial health. They provide valuable information about the company’s revenues, expenses, assets, liabilities, and equity, as well as other key financial metrics such as profitability, liquidity, and solvency.

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Key Differences Between Balance Sheet and Financial Statement

  • The balance sheet is a financial statement showing a company’s current financial position. It provides information on a company’s assets, liabilities, and equity. A company owns or controls assets such as cash, investments, inventory, property, and equipment. A company owes liabilities to others, such as loans, accounts payable, and taxes. Equity shows the residual interest in the company’s assets after deducting liabilities.
  • On the other hand, financial statements summarize a company’s financial performance over time. They include income statements, cash flow statements, and balance sheets. Income statements show a company’s revenue and expenses and whether it made a profit or loss during the reporting period. Cash flow statements show the inflows and outflows of cash during the period.
  • Balance sheets are usually prepared at the end of each accounting period, while financial statements are prepared quarterly or annually.
  • Accounts prepare balance sheets are generally simpler than financial statements, as they only include three categories (assets, liabilities, and equity), while financial statements can be more complex.
  • Balance sheets may be required by law or accounting standards, while financial statements are usually required by law.
  • Overall, balance sheet reflects a company’s financial position at a point in time, while financial statements summarise a company’s financial performance over time.

FAQs

What is a balance sheet?

A balance sheet is a financial statement that shows the company's assets, liabilities, and shareholders' equity at a specific point in time.

What are financial statements?

Financial statements encompass a range of reports, including the balance sheet, income statement, cash flow statement, and statement of changes in equity, providing a comprehensive view of a company's financial performance and position.

How does a balance sheet differ from an income statement?

While a balance sheet presents a snapshot of a company's financial position at a specific date, an income statement showcases the company's revenues, expenses, and net income over a specific period.

What is the purpose of a balance sheet?

The balance sheet helps stakeholders understand what a company owns, owes, and the residual interest of shareholders at a particular date, providing insights into its financial health.

About the Author
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Chanchal Aggarwal
Senior Executive Content

Chanchal is a creative and enthusiastic content creator who enjoys writing research-driven, audience-specific and engaging content. Her curiosity for learning and exploring makes her a suitable writer for a variety ... Read Full Bio

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