The profit and loss account or income statement summarizes the revenues and expenses of a business enterprise for an accounting period. The information on the income statement is regarded by many to be more important than information on the balance sheet because the income statement reports the results of operations and enables to analyze the reasons for the enterprises’ profitability or loss thereof. A close relationship
exists between income statement and balance sheet; the statement of retained earnings which is a concomitant of income statement explains the change in retained earnings between the balance sheets prepared at the beginning and the end of the period.
Balance sheet is one of the most important financial statements which shows the financial position of a business enterprise as on a particular date. It lists as on a particular date, usually at the close of the accounting period, the assets, liabilities and capital of the enterprise. An analysis of balance sheet together with profit and loss account will give vital information about the financial position and operations of the enterprise. The analysis becomes all the more useful and effective when a series of balance sheets and profit and loss accounts are studied.