What Is an Income Statement and Balance Sheet?

An income statement and balance sheet are essential financial documents. Income statements are typically used to measure revenue, cost and expenses. Balance sheets, on the other hand, help determine an individual or organization’s financial standing or health. 

According to data published on Statista, the United States’ Federal Reserve had $7.17 trillion worth of assets on their balance sheet as of June 2020.    

Tips to Augment Income

An ideal situation would be where one’s income can meet or match one’s expenses. Unfortunately, the reality is that a lot of people are unable to meet their needs because of a lack of income. Or in some cases, their expenses and lifestyle choices significantly exceed their income. There can be several ways to augment or supplement one’s income. It may not be easy at times, but if done correctly and responsibly, you can earn a little extra.  

Sideline jobs. One of the most common ways of augmenting your income is by taking on side projects or even a part-time job. Aside from your regular job, you can engage in other work outside of your full-time job. That is, of course, if your schedule and circumstances permit. Many people are either unsatisfied or underpaid in their day jobs. In order to meet their needs and wants, they may render service on a per-project basis. These sideline jobs are simply a way to supplement their existing income. Sideline jobs can even be considered passion projects; wherein, you are able to indulge in your hobbies and interests and get paid for it in the process. It is important to note, however, that part-time jobs or sideline projects should not distract nor impede your commitment to your full-time job. Investments. Another way people augment their regular incomes is by investing in the stock market. Stocks or bonds are just another form of passive income. If you want to grow your money, you might want to consider buying stocks from a publicly-listed company. Although, the purchase and sale of stocks is a whole other game that requires careful decision-making and prudence. There are hundreds of horror stories of fraud and theft due to irresponsible investments. To avoid falling victim to this, it is advisable to do your research and seek sound financial advice. You need to be able to weigh the risks and benefits before investing. Do not let greed or the promise of quick returns cloud your judgment. It is crucial to be discerning and strategic when it comes to investing your money.Selling. If you do not have time to take on other jobs or if investing in stocks is not your cup of tea, one of the simplest and most straightforward ways of earning money is through selling. It is a quick way to earn a little cash on the side. By selling what you already own, you just need a buyer to purchase it. Sift through your personal belongings and simply attach a price to it. A lot of people sell second hand or ‘pre-loved’ items all the time. And with the ease and convenience of online selling or e-commerce, finding a potential buyer is no longer that difficult. You can sell all kinds of items in an online marketplace or on e-commerce platforms. You do not even have to open a physical store to start selling. Clothes, appliances, furniture, general supplies, groceries and even cars are listed on these selling platforms. With the right business attitude and perseverance, you can earn a hefty profit just from letting go of the stuff you no longer need.

When it comes to balance sheets and income statements, there are a number of key concepts that you must familiarize yourself with first. You cannot craft a sound or accurate balance sheet or statement without knowing the basic components that comprise it. The following examples describe just some of these main concepts needed in creating an income statement or  balance sheet.  

Assets. When people speak of assets, it is generally awarded a positive connotation. People are often told to flaunt their physical ‘assets’. Following that line of thinking, assets in a business sense can entail a similar meaning. Assets are basically resources that an individual or organization possesses. Two of the most common assets are cash and real estate property. But cars, jewelry, furniture, patents, or basically anything that holds value can be considered an asset. Even money that has yet to be paid or accounts receivable can fall under this category. In creating a balance sheet, you need to have a clear picture of what your assets are. Only by listing these items individually and specifically can you accurately assess your company’s financial standing. Liabilities. You cannot itemize your assets without including the liabilities at the same time. If assets have a positive connotation, a liability is the complete opposite. When people refer to someone as a liability, it generally means they are a risk or can cost something. In financial terms, however, liabilities are anything that an individual or company owes or needs to pay. It can be a debt that needs to be settled, outstanding sums that have yet to be paid, mortgage payments, unpaid taxes, credit payments and other types of loans. In summary, if you want to gain a favorable financial standing or foothold, you ought to lessen your number of liabilities as much as possible. This means settling any debt or loan you may still have. Expenses. When you make an income statement, it is essentially impossible to leave out the expenses. Income and expenses usually go hand-in-hand. Whether you are creating a personal household income statement or an official corporate income statement, there will always be some form of cost or expense incurred. Households need to spend for supplies and other necessities. Companies and establishments have to contend with operating costs in order to keep their organizations running. What is important to keep in check is ensuring that one’s expenses do not exceed one’s income. When your expenses cannot keep up with your income, the tendency is for people to borrow money or take on credit. Doing this will only lead to more liabilities. Thus, it is vital to maintain balance when it comes to both incoming and outgoing cash flow.Revenue. If liabilities are to assets, then expenses are to income or revenue. You cannot settle expenses without having some source of steady income. For traditional companies or corporations, profit and revenue are key. For most for-profit organizations, the bottomline is what ultimately matters. Many companies often resort to all sorts of cost-cutting and downsizing measures especially if the survival of the business is at stake. In other words, expenses would need to be cut down especially if profits or income are low. On the other hand, there are two major kinds of income for individuals or households. These are active and passive income. The former entails deliberate and sustained work such as in the case of regular monthly wages. One of the most common ways to earn passive income is through renting or leasing.

How to Create an Income Statement and Balance Sheet

To create an income statement and balance sheet, you need to have a firm grasp on your financials. And if you are looking for a quick and easy way to create one, using a ready-made template can save you a lot of time and energy. Easily download a sample template of your choice and input the right data. Follow the step-by-step tutorial below to get started. 

Step 1: Format

Before inputting any financial data or records, you need to establish a structured format. It is important to choose a format that you can work with and one that will serve your specific needs as well. Fortunately, there are dozens of predesigned statements and spreadsheets that are available to download and edit. Income statements and balance sheets are typically created using applications such as Microsoft Excel or Google Sheets. What’s important is how well you present and arrange the data. You not only have to make sure the format is clear and comprehensible, but it should also be flexible or easy enough to modify.    

Step 2: Numbers

The next step is to input the numbers or financial data. Anyone can create a basic income statement or balance sheet. Individuals may feel the need to make one to help get their finances in order. It is even more common for companies and establishments to require these for their financial requirements and monitoring. As mentioned in the previous section, important items such as assets, liabilities, expenses, and revenue need to be incorporated in your statement or spreadsheet. But this will still highly depend on your individual or organizational needs. Lastly, make sure the amounts you input are accurate and updated.    

Step 3: Review

Once you have inputted the financial amounts, you need to ensure that your data is true and correct. Like for any important document, it is important to review all data before finalizing and submitting it. Reviewing is an important step that should not be overlooked. It can be easy to dismiss or skip this step especially if it’s inconvenient or if you are short on time. A balance sheet can have a staggering amount of numbers and figures. And in accounting, even just one mistake can upend the entire spreadsheet. Make sure to review your income statement and balance sheet once it’s completed. Better yet, have a colleague or trusted friend review it a second time too.       

Step 4: Next Steps 

Lastly, the work does not necessarily end once you have finished the last spreadsheet. Yes, the numbers and data are crucial. But it is also important to remember that more than the data itself, it is what you do with the information you have gathered and how you apply it. The last step is to come up with recommendations or a plan based on the data you just inputted. What are your next steps? If your overall conclusion is that your financial standing is unfavorable or it needs significant improvement, then you need to act or plan accordingly.        


What is the difference between a balance sheet and an income statement?

An income statement is mainly and exclusively focused on income, revenue, cost and expenses. But a balance sheet is more general in a sense that it can contain several financial data. It usually also includes assets and liabilities.

Since you need to create a balance sheet to determine your financial standing, you would need to consider your income and expenditures. An income statement, therefore, can be directly linked or integrated into a balance sheet.

What is an income statement and balance sheet explained with examples?

As mentioned all throughout the article, an income statement and balance sheet are both financial documents that are usually used to determine one’s financial standing or financial health. Browse the selection of example templates above to get a more concrete picture of what balance sheets and income statements are.

To better track or monitor your finances, you need to know how to create an accurate income statement and balance sheet. Browse the wide collection of editable templates above to get started on your own statement or sheet today!