Chapter 4 :

2. Describe the relationship between the incomes statement and the balance sheet.

The Income Statement
Income Statement is calculated by finding a company's income. Revenues are calculated
according to the type of business the company is running. After income for a period has been
identified, then the accountant will calculate the expenses incurred in a period, after the expense is
known, then the next step is to look for the difference between the balance in income and the
balance in the expense. The result is called 'net profit' if revenue exceeds costs, and is called 'net
loss' if costs exceed revenue.

Balance Sheet
Also called a statement of financial position, because the balance sheet describes the
position of assets and liabilities of a company. Assets in the balance are in the left position while the
liabilities are on the right side. Assets in the left position contain current assets and fixed assets of a
company, while liabilities in the right position contain the debt and capital of a company. In the
balance sheet recording between assets and liabilities the balance must be balance, in terms of
income must be in accordance with expenses, this is the reason why the balance sheet is called a
balance sheet.

The relationship between the income statement and the balance sheet :
From the explanation of the income statement and balance sheet above it can be concluded
that, the income statement and balance sheet have a very important relationship. The relationship
between the income statement and balance sheet, which is the income and expenses presented in
the income statement, results in changes in assets and liabilities in the balance sheet.