Final answer:
The income statement details a company's revenues and expenses over a period, reflecting operational performance, while the balance sheet gives a snapshot of the company's financial position at a point in time, showing assets, liabilities, and shareholders' equity. A bank's balance sheet includes assets such as cash and loans, and liabilities like customer deposits, with the difference being the bank's net worth.
Step-by-step explanation:
The income statement and balance sheet are fundamental financial statements used in accounting and finance to give stakeholders an overview of a company's financial health. An income statement, also known as a profit and loss statement, details a company's revenues and expenses, culminating in a net income or loss for a specific period. It captures the company's operational performance.
On the other hand, a balance sheet is a snapshot of a company's financial position at a specific point in time. It lists the company's assets, including things of value like cash and real estate; liabilities, which are debts and obligations like loans and mortgages; and shareholders' equity, which is the remaining interest in assets after all liabilities have been paid. This financial statement is structured in the form of a 'T-account,' which presents assets on one side and liabilities plus shareholders' equity on the other side, balancing out as the equation Assets = Liabilities + Shareholders' Equity.
Specifically, a bank's balance sheet will list items such as cash held in vaults, reserves held at the Federal Reserve Bank, loans to customers, and owned bonds as its assets, while the liabilities include customer deposits and other borrowed funds. The difference between a bank's total assets and total liabilities represents the bank's net worth or bank capital. This is also reflective of a bank's financial stability and regulatory compliance.