Question
As a small business owner I see both statements from my accountant but do not fully understand how they differ.
Answer
A profit and loss account shows your income and expenses over a period to arrive at profit or loss, while a balance sheet shows what the business owns and owes on a single date. The P&L covers a span, typically a financial year, and answers did I make money. The balance sheet is a snapshot of assets, liabilities and capital as on the year-end date, and answers what is the business worth and how is it funded. The net profit from the P&L flows into the balance sheet as reserves. Both are mandatory parts of a company audited financial statements. Test your financial health with our ratio analysis calculator.
This answer is general information based on the law as it stood when written and is not professional advice on your specific situation. Verify the current position and consult a qualified professional before acting. See our disclaimer.