Profit and loss statement vs balance sheet vs cash flow statement
The P&L statement, balance sheet and cash flow statement are three of the most common financial reports you’ll come across as a business owner.
So what’s the difference?
As we’ve covered, a P&L statement is an overview of your profits and losses over a particular period of time, such as a month, quarter or year.
A balance sheet, on the other hand, shows your business’s assets and liabilities at a specific point in time rather than over a period. That includes what your business owns, the amount it owes together with the amount that is invested by its shareholders.
A cash flow statement shows you how much cash is coming in and going out of your business. It can help you see how much of your profits are going into your bank account as cash over a certain period.
All three reports are important for understanding your business finances and are often considered by lenders and investors.
Let’s say you own a candle making business. Last month you sold $1,000 worth of candles and used $400 worth of materials to make candles. Your P&L statement would show these profits and losses, and that your net income for the month is $600.
You also have $200 in cash on hand and inventory worth $200, as well as a $100 debt owing to a supplier. Your balance sheet would show that you have an equity position of $300.
Your cash flow statement would show your cash position as $900 ($1,000 in cash sales + $200 cash in hand - $100 in debt paid).