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