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Income Statement
An income statement, also known as a profit and loss statement, creates an itemized list by category of all your revenues and subtracts an itemized list by category of all your expenses to come up with a profit or loss for the period.
An income statement allows you to:
Track revenues and expenses so that you can determine the operating performance of your business.
Determine what areas of your business are over-budget or under-budget.
Identify specific items that are causing unexpected expenditures. Like phone, fax, mail, or supply expenses.
Perform a trend analysis of revenues and or expenses to determine where profits can be improved.
Determine your income tax liability.
Balance Sheet
A balance sheet gives you a snapshot of your business' financial position at a specific moment in time.
A balance sheet helps you:
identify and analyze trends, particularly in the area of receivables and payables. For example, if your receivables are growing, it could be an indication that the receivable cycle is lengthening, maybe you can collect your receivables more aggressively.
determine if your business is in a position to expand and allows you to adapt to poor market conditions.
determine if you need to take immediate steps to bolster cash reserves
Balance sheets, along with income statements, are the most basic elements in providing financial reporting to potential lenders such as banks, investors, and vendors who are considering how much credit to grant you.
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