As a manager or business owner, you should be familiar with the basic financial statements used in business. Two of these basic statements are the income statement and the balance sheet. While they both contain essential information for your business, they are very different documents. Understand these differences and how each financial statement can benefit your business. The income statement represents a period of time. The length of this period can vary. For example, annual statements will contain information for the entire year while quarterly statements cover three months. The time frame should be clearly indicated on an income statement. The balance sheet, on the other hand, reflects the finances at one specific point in time. The balance sheet must be dated and values expressed on it are only accurate as of that date. The income statement documents all of a business's income and expenses over a period of time. Revenue is documented in the credit account on the income statement while expenses are recorded as debits. The balance sheet provides a snapshot of the company's finances. It reports three items: assets, liabilities and owners' equity. Assets are properties of value owned by the company, liabilities are financial obligations of the company and owners' equity is the value of the company to shareholders. The income statement is also known as a profit and loss statement. The primary purpose of an income statement is to determine how much money a company earned or lost over a period of time. Because the income statement breaks earnings and expenses down into categories, it's possible for managers to identify sources of profits and losses. The balance sheet is also known as the statement of financial position, because it gives managers and investors an overview of where the company stands financially. The income statement requires just one simple set of calculations. Add up the company's revenue and add up all of its expenses. Subtract expenses from revenue to reveal the company's profit or loss. You must perform a few basic calculations on the balance sheet as well. To calculate owners' equity, subtract the firm's liabilities from its assets. The firm's assets must always be equal to liabilities and owners' equity on the balance sheet.- Creatas/Creatas/Getty Images