TexaCore is a general ERP for business owners and accountants, bringing accounting, inventory, and sales together in a free-forever desktop edition that works offline. Check the current subscription catalogue for cloud pricing, trial terms, and current limits.
· TexaCore
The short answer
The income statement reports income and expenses for a period and ends with profit or loss. The balance sheet reports what the company owns and owes, and the owner’s interest, on one date. Both are built from the same ledger. The profit from the first statement is included in equity in the second, which is how the two connect.
In IFRS terms these are the statement of profit or loss and the statement of financial position. IAS 1 lets an entity use other titles. IFRS 18, issued in April 2024, replaces IAS 1 for annual periods beginning on or after 1 January 2027 and keeps both statements while changing how income and expenses are categorised.
A worked example
The balances come from the trial balance of the previous article. Read the trial balance article first if you want to see them.
| Line | Amount |
|---|---|
| Sales | 2,400 |
| Cost of goods sold | (1,500) |
| Gross profit | 900 |
| Rent expense | (500) |
| Profit for the month | 400 |
| Line | Amount |
|---|---|
| Cash | 9,500 |
| Accounts receivable | 1,400 |
| Inventory | 2,500 |
| Total assets | 13,400 |
| Accounts payable | 3,000 |
| Owner’s capital | 10,000 |
| Profit for the month | 400 |
| Total liabilities and equity | 13,400 |
Total assets (13,400) equal liabilities plus equity (13,400). Equity is the owner’s capital plus the profit of the month, so the profit of 400 appears in both statements.
The differences in practice
- Time: the income statement covers a period; the balance sheet shows one date.
- Content: income and expenses on one side; assets, liabilities and equity on the other.
- Carry-over: balance sheet accounts carry their balances into the next period; income and expense accounts start again from zero, because at the end of the year they are closed into equity (retained earnings).
- Question answered: did the company earn more than it spent in the period, and what does it hold and owe now?
In TexaCore
This section describes the product. The income statement and the balance sheet read posted entries live, with a date range, opening balances and an optional second presentation currency, and are viewed on screen without export. Closing a fiscal year zeroes income and expenses into retained earnings and blocks posting into that year; reopening it needs a separate permission. TexaCore closes whole fiscal years; there is no close of a single month.
See reports and accounting. Next: why profit is not cash.
Scope of this article
This article explains general accounting principles using IFRS terms and an invented company. Tax and statutory rules differ by country and are not covered; check them with a qualified accountant.
FAQ
- Which statement shows profit?
- The income statement, called the statement of profit or loss under IFRS, shows profit or loss for a period. The balance sheet includes that profit within equity.
- Why does a balance sheet balance?
- Assets equal liabilities plus equity. Every entry changes both sides by the same amount, and the profit earned in the period increases equity by the amount net assets grow.
- Can a company be profitable and still short of cash?
- Yes. Profit follows when income and expenses are recognised, not when money moves. The next article explains this with the same example.
Sources
- IAS 1 Presentation of Financial Statements — IFRS Foundation / IASBThe components of financial statements: the statement of financial position and the statement of profit or loss.
- IFRS 18 Presentation and Disclosure in Financial Statements — IFRS Foundation / IASBIssued April 2024, effective for annual periods beginning on or after 1 January 2027, replacing IAS 1.
- Conceptual Framework for Financial Reporting — IFRS Foundation / IASBDefinitions of income and expenses and of the elements of the balance sheet.
- Intermediate Accounting (D. E. Kieso, J. J. Weygandt, T. D. Warfield) — WileyThe income statement, the balance sheet and the closing process.