The Relation Between the Balance Sheet and the Profit-and-Loss Statement.

Abstract The article discusses the relation between the balance sheet and the profit and loss statement. The income account is not more fundamental than the balance sheet. It cannot be so because balance sheet valuations are generally another aspect of income measurements. When researchers are concerned with the amount of Accounts Receivable, for example, they are concerned with the amount of revenue for a past period or periods. When they are interested in the valuation of machinery, they are also interested in the amount of depreciation. It may be that researchers have more use for the information provided by the profit and loss statement, but they cannot have faith in that information unless they believe in the balance sheet valuations. All enterprise accounting is, in one sense, profit and loss accounting, for researchers are always concerned with the distribution of receipts and disbursements through time. All enterprise accounting is therefore dynamic. The fact that we exhibit momentarily the amount of the leads and lags should not distract from the kinetic character of procedures. The balance sheet and the profit and loss statement are complementary; each completes the picture by presenting a different aspect of enterprise receipts and disbursements.