Difference between balance sheet, income statement, cash flow statement explained: How these financial statements differ

There are various accounting statements that help assess and document the financial health and performance of a company. Balance sheet, income statement and cash flow statement are three such metrics that help track the revenue, profit, expenses, assets, liabilities, cash flow, among others of a business.

Considered together, these documents help monitor the company’s financial position and take decisions regarding the growth, strategy and future trajectory of the business. Here’s how these statements differ from each other

Balance sheet

The balance sheet provides a snapshot of the company’s assets, liabilities and equity at any given point in time. It mentions both short- and long-term assets, as well as the means of financing these assets in the form of capital (equity) or debt (liabilities). The latter is also split into short- and long-term durations.


Assets include property, building, machinery, equipment, cash, accounts receivable, inventory, patents, among others. Liabilities include bank loans, accounts payable, tax or pension liabilities, etc. Equity—also known as shareholders’ or owners’ equity—is the total amount invested in the company.

The balance sheet helps gauge the financial strength of a business at a specific time or compare the performance at different points in time.

How the three statements differ

Income statement

Also known as ‘profit and loss statement’, it displays the total revenue, expenses and net income (profit or earnings) generated by the company over a specific period of time. Revenue is the amount earned by the business through sale of its products or services, while expenses include the money spent on the smooth operation and running of the company.

If the revenue exceeds expenses, the company makes a profit, and if the revenue is less than the expenses, it suffers a loss. While revenue is considered the ‘top line’, the net profit is referred to as the ‘bottom line’. The income statement can be generated monthly, quarterly or annually to assess the company’s performance. Periodic statements can help make budgeting decisions or curtail expenses to increase revenue and profit.

Cash flow statement

This statement helps understand a company’s overall liquidity by depicting how cash flows through the organisation. The cash transactions, including inflows and outflows over a period of time, are derived from all the activities related to investing, operations and financing.

To create the cash flow statement, figures from income statement are used without including the non-cash transactions. Cash flow statement is generated monthly, quarterly or annually to understand and analyse the flow of cash and improve its usage.