This document provides an overview of balance sheets and income statements for engineering economics. It defines key terms like assets, liabilities, equity, revenues and expenses. A balance sheet captures a company's financial position at a point in time by listing assets, liabilities, and equity. An income statement measures performance over time by reporting revenues and expenses to determine profit or loss. The document discusses uses of each statement and provides examples to analyze financial performance and health.

1. ENGINEERING ECONOMICS 1
Koya University
Faculty of Engineering
Chemical Engineering Department
3rd Stage (2021-2022)
Instructor
Mrs. Dunya Ibrahim
Prepared by:
Safeen Yaseen Ja’far
Submitted On
13 Apr. 2022
Engineering Economics
Balance Sheet and Income Statement

2. ENGINEERING ECONOMICS 2
Balance Sheet and Income Statement
Concepts and Definitions
Balance sheets and income statements are invaluable tools for business owners to
measure their company's performance and prospects, but they differ in key ways.
Balance Sheet: provides a snapshot of a firm's financial position at a specific point in time.
The balance sheet is the cornerstone of a company's financial statements, providing a
snapshot of its financial position at a certain point in time.
It includes what the company owns (its assets), what it owes (its liabilities), and owner's
equity, which includes money initially invested in the company, along with any retained
earnings attributable to the owners or shareholders. [1]
This statement is divided into two columns, based on the following equation:
Liabilities + Shareholder's equity = Assets
Income Statement: also known as a profit and loss statement – measures performance over
a period of time.
The income statement, also known as the profit and loss statement, includes all
income and expense accounts over a period of time. This financial statement shows how
much money the business will make after all expenses are accounted for. [2]
The format of the income statement is as follows:
Income – cost of sales = gross margin
Gross margin – fixed operating expenses = net profit
Applications of Balance Sheet and Income Statement
Uses of the Balance Sheet
1. To Determine If Working Capital is Enough
The balance sheet is used to determine if the business has enough working capital to
sustain its operation. Working capital is the difference of current assets less current liabilities.
It measures if the company still has enough current resources after deducting its due loan or
obligations.
2. To Know the Business Net Worth
Net Worth is defined as the true value of an entity. It shows how rich or poor it is. It is
computed by the difference of total assets fewer total liabilities.

3. ENGINEERING ECONOMICS 3
3. To See If the Company Can Sustain Future Operation
By looking at the balance sheet, you can determine if the company can sustain future
operation. To do this, look at the value of its non-current assets such as property, plant and
equipment.
4. To Identify If There’s Possible Issuance of Dividend
Most business owners/investors are interested to know if when will they receive returns from
their investment. Such returns can be in the form of Dividends. Dividends are issued if the
company is profiting and has high amount of retained earnings. [3]
Example of Balance Sheet

4. ENGINEERING ECONOMICS 4
Uses of the Income Statement
Though the main purpose of an
income statement is to convey details of
profitability and business activities of the
company to the stakeholders, it also
provides detailed insights into the
company’s internals for comparison across
different businesses and sectors. Such
statements are also prepared more
frequently at the department- and segment-
levels to gain deeper insights by the
company management for checking the
progress of various operations throughout
the year, though such interim reports may
remain internal to the company. [4]
Advantages of Balance Sheet
• Balance Sheets Determine Risk and Return
• This Report Can Be Used to Secure Business Loans and Other Types of Working Capital
• Business Balance Sheets Provides Helpful Ratios
Advantages of Income Statement
• Provides detailed information on revenues
• Database for Investor Analysis:
• Other benefits
Disadvantages of Balance Sheet
• Valuation of Internally Generated Assets
• Mis-stated Long-term assets
• Snapshot at a particular date
Disadvantages Of Income Statement
• Misrepresentation of data
• Other factors

5. ENGINEERING ECONOMICS 5
References:
1. Business News Daily. (2021). Difference Between Balance Sheets and Income
Statements - businessnewsdaily.com. [online] Available at:
https://www.businessnewsdaily.com/16513-balance-sheet-vs-income-
statement.html#:~:text=The%20balance%20sheet%20and%20income
[Accessed 13 Apr. 2022].
2. Tory Burch Foundation. (2015). Introduction to the Income Statement. [online]
Available at: https://www.toryburchfoundation.org/resources/start-my-
business/introduction-to-the-income-
statement/#:~:text=The%20income%20statement%2C%20also%20known
[Accessed 13 Apr. 2022].
3. MPM Consulting Services Inc. (2013). What is the Use of the Balance
Sheet? [online] Available at: https://mpm.ph/use-balance-
sheet/#:~:text=The%20balance%20sheet%20is%20used [Accessed 13 Apr.
2022].
4. Chen, J. (2021). Income Statement. [online] Investopedia. Available at:
https://www.investopedia.com/terms/i/incomestatement.asp. [Accessed 13
Apr. 2022].