Companies prepare the balance sheet and the income statement periodically at the end of each accounting cycle. While a balance sheet relates to a specific date, or a given point within an accounting cycle, an income statement is concerned about a particular period, or the time during an accounting cycle. Companies use the balance sheet to report their financial conditions that can be measured only at a point in time, and the income statement to report their financial performance that is tracked often over a period of time.
A company's accounting cycle starts with recording business transactions and ends with compiling financial statements, including the balance sheet and income statement and closing accounting books for the cycle period. Companies may carry out their accounting cycles on a yearly or quarterly basis. The choosing of an accounting cycle determines both the date for the balance sheet and the period for the income statement, reports the Corporate Finance Institute. When to report the balance sheet and how long to cover the income statement affect the balance sheet values and income statement amounts.
A balance sheet reports financial information for a period of time and often states that it is prepared as of a specific date, referred to as the balance sheet date. The balance sheet reports on a company's financial conditions, namely the values of the company's assets, liabilities and shareholders' equity. Values are measured in terms of their monetary amounts at particular points in time rather than over any periods, reports Accounting Tools. At the end of an accounting cycle, with the accounting books closed to recording new business transactions, companies can summarize their financial conditions as of the cycle's end.
Advertisement Article continues below this adAn income statement often states that it is prepared for a particular period, referred to as the income statement period. The income statement reports on a company financial performance, namely the various revenues and gains it has earned and expenses and losses incurred over time. Unlike measuring balance sheet item values at a point in time, tracking revenues and gains or expenses and losses requires the totaling of all sale or cost transactions over a period. At the end of an accounting cycle, with the accounting books closed to recording new business transactions, companies can summarize their financial performance for the time during the cycle.
Dates between a balance sheet and an income statement also differ in terms of how the balance sheet and income statement of the current accounting cycle relate to those from the next accounting cycle. While values of assets, liabilities and equity in the balance sheet are accumulated over time on a continuing basis, amounts of revenues, gains, expenses and losses are reset and measured from each accounting cycle. In other words, balance sheet values at any date are the balance sheet values at the prior date plus any increases and minus any decreases, but income statement amounts of any period are independent of those from any other periods.