Balance Sheet vs P&L Statement: How Different Are They?
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- Published 18 Dec 2025
If ever you are asked to analyse a company and find out about its financial health, in all probability you’ll be told to look at its balance sheet and profit and loss statement. They are just two ways of looking at a business’s money. Think of them as two sides of the same financial coin. While one tells you where you stand today, while the other tells you how you got there.
What is a Balance Sheet?
Think of a business as a human body. The balance sheet is like a snapshot of your health, your weight, blood pressure, and all those numbers your doctor checks during a routine check-up. It tells you what a company owns (assets), what it owes (liabilities), and what’s left (equity).
What is a P&L Statement?
The P&L statement is like a fitness tracker. It tells you how well you’ve been eating and exercising over a period of time and if you’re burning more calories (making money) than you’re consuming (spending). Also known as an income statement, the P&L statement shows a firm’s growth trajectory over a period of time.
Balance Sheet vs P&L Statement: The Differences
The table captures the key differences between a balance sheet and P&L statement on various parameters:
Definition | It’s a financial statement that shows a company’s financial position at a specific point in time. | It’s a financial statement that summarises the revenues, expenses, and profits or losses over a period of time. |
Purpose | It provides a snapshot of assets, liabilities, and equity to assess financial health. | It measures financial performance by showing how much profit or loss a business has made. |
Time Frame | It represents a single date (e.g., year-end, quarter-end). | It covers a period such as a month, quarter, or year. |
Key Components | Its key components include: | Its key components include: |
Assets (what the company owns) | Revenue (income from business operations) | |
Liabilities (what the company owes) | Expenses (costs incurred) | |
Shareholders’ Equity (owners’ investment and retained earnings) | Net Profit or Loss (Revenue - Expenses) | |
Financial Insights Offered | It helps in assessing liquidity, solvency, and net worth. | It helps in analysing operational efficiency and profitability trends. |
Usage | It is used by investors, lenders, and management to evaluate financial stability. | It is used to determine profitability, cost control, and business efficiency. |
How Do They Work Together?
While the P&L statement tells you whether the business made a profit, the balance sheet shows what happens to that profit, whether it’s reinvested, saved or used to pay off debts.
Summing it Up
If you want to know how well a business is performing, look at the P&L statement. On the other hand, if you want to know its overall financial health, you can check the balance sheet. Note that understanding the differences between a balance sheet vs P&L statement isn’t just for accountants. It’s vital for anyone who wants to make smarter financial decisions.
