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Explain the following statement: Although the balance sheet can be thought of as a snapshot of a firm’s financial position at a point in time, the income statement reports on operations over a period of time.
The balance sheet, now called statement of financial position, represents the balances of the assets, liabilities and equity at a point in time - the capital structure of the company. Hence, `financial position'. This represents what the company owns and owes at a certain point in time. In other words, it represents what the company can do with its current financial position. However, the balance sheet alone is not enough to indicate the financial performance of the company.
The income statement represents the performance of the company for a certain period of time, hence it reports on operations `over a period of time.' It shows in detail what happened for a certain period of time.
In short, the balance sheet shows what the company owns and owes, - its capital structure at a point in time, but the income statement shows what the company has done over a certain period of time - indicating operating performance.
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