What Is the Difference Between a Balance Sheet Versus a Profit & Loss Statement?

A complete financial report consists of a balance sheet, profit and loss account and cash flow statement. Each of these components shows details of operations, financing and investments. The main difference between a balance sheet and a profit and loss statement is the nature and scope of their financial contents.

The balance sheet focuses on long-term and current assets, long-term and current liabilities and owner’s capital contribution. Long-term assets are items such as machinery that can't be converted into cash on short notice. Current assets are cash or cash-convertible items, such as accounts receivables and inventory. Long-term liabilities are borrowed funds payable over periods exceeding one year while current liabilities are items like accounts payables and bank overdrafts payable within a year.

A profit and loss account, or income statement, shows the gross and net profits of the business. Gross profit is total sales, while net profit is the gross minus operation costs, such as wages and utility bills. While a balance sheet summarizes the capital, assets and liabilities of a business, a profit and loss statement shows its income and its scope of profitability.