Why are there two statements, Balance Sheet and Profit and Loss?

The Balance Sheet is a snapshot of the business as of a specific date. It shows how much money is in the bank, how much is owed to the business by customers, the value of equipment, how much is owed on loans and how much is owed to vendors. These numbers change with every transaction. If you pay a vendor bill, this reduces the money in the bank and reduces the accounts payable total.


The Profit and Loss statement is a summary of all activity for a period of time. Typically business managers review this statement monthly. It includes sources of revenue and how the income was spent. The net profit, commonly referred to as "The Bottom Line" is the difference between the total money earned and the total expenses.

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