I’ve heard about balance sheets and profit and loss statements, but I’m not sure what the difference is between the two.
Could someone explain how each one works and when they’re typically used?
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As a finance expert, I can explain that a balance sheet and a profit and loss statement (P&L) are both essential financial documents, but they serve different purposes. The balance sheet gives a snapshot of a company’s financial position at a particular point in time. It lists assets, liabilities, and equity, showing what the company owns, owes, and the owner’s stake. On the other hand, the profit and loss statement shows the company’s financial performance over a period, typically a month, quarter, or year. It details revenues, costs, and expenses to reveal whether the company made a profit or incurred a loss during that time. While the balance sheet provides a static view of financial health, the profit and loss statement offers a dynamic look at how well the company is operating. Both documents are important for understanding a business’s financial standing and making informed decisions.
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