Financial Statements
Basic income statement and balance sheet
Income Statement and Balance Sheet
Financial statements summarise a business's financial position. The income statement shows profit or loss over a period (income minus expenses). The balance sheet shows what the business owns (assets), owes (liabilities) and is worth to the owner (equity) at a specific date.
Example
Simple Financial Statements
Income Statement (for March):
Sales income: R25 000
Less Expenses:
Cost of sales: R12 000
Rent: R3 000
Salaries: R5 000
Net Profit: R5 000
Balance Sheet (31 March):
Assets: Cash R8 000 + Equipment R20 000 = R28 000
Liabilities: Loan R10 000
Owner's Equity: R18 000
(Assets = Liabilities + Equity)
Note
Remember
The accounting equation: Assets = Liabilities + Owner's Equity. It must ALWAYS balance. The income statement covers a period (month/year). The balance sheet is a snapshot of ONE date. Together they tell the story of business performance.
Key Vocabulary
Income statementA financial statement showing profit or loss over a period
Balance sheetA statement showing assets, liabilities and equity at one date
AssetSomething of value owned by the business
LiabilityA debt or amount the business owes
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Income statement
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