Balance Sheet and Profit & Loss Account are key financial statements used to assess a company’s financial health. The Balance Sheet provides a snapshot of the company's assets, liabilities, and equity at a specific point in time, reflecting its overall financial position. The Profit & Loss Account, on the other hand, summarizes revenues, expenses, and profits over a period, showing the company’s operational performance. While the balance sheet reflects what a company owns and owes, the profit & loss account indicates its profitability during the reporting period.

What is a Balance Sheet?

A Balance Sheet is a financial statement that provides a snapshot of a company’s financial condition at a specific point in time. It details the company’s assets, liabilities, and shareholders’ equity, thus showing what the company owns and owes. This statement is crucial for evaluating the net worth and financial stability of a business.

Examples of Balance Sheet Items:

1. Assets: Cash and cash equivalents, inventory, property, plant, and equipment.
2. Liabilities: Loans, accounts payable, mortgages.
3. Equity: Retained earnings, issued share capital.

What is a Profit & Loss Account?

A Profit & Loss Account (P&L), also known as an income statement, summarizes the revenues, costs, and expenses incurred during a specific period. This account reflects the company’s operational performance over a certain period, detailing how the revenues are transformed into the net income.

Examples of Profit & Loss Account Items:

1. Revenue: Sales revenue, revenue from services.
2. Expenses: Cost of goods sold, salaries, marketing expenses.
3. Results: Operating profit, net income before taxes, net income.

Difference Between Balance Sheet and Profit & Loss Account

Basis	Balance Sheet	Profit & Loss Account
Definition	A financial statement showing the company's financial position at a particular point in time.	A financial statement showing the company’s financial performance over a specific period.
Purpose	To provide a snapshot of what the company owns (assets) and owes (liabilities) along with the equity.	To demonstrate how the company has performed in earning profit or incurring a loss over the period.
Time Frame	As of a specific date, typically the end of the fiscal year.	Over a period, such as a month, quarter, or year.
Components	Assets, Liabilities, and Equity.	Revenues, Expenses, Profits, or Losses.
Nature	Static – captures the financial status at a particular moment.	Dynamic – summarizes transactions over the period.
Focus	Solvency and financial stability.	Profitability and operational efficiency.
Regularity	Prepared annually at the fiscal year-end.	Could be prepared monthly, quarterly, or annually.
Key Indicators	Current ratio, debt to equity ratio.	Gross profit margin, net profit margin.
Examples	Showing the total amount of assets equalling the combined total of liabilities and equity.	Detailing total sales and subtracting various costs to show the net profit or loss.