Balance Sheet & Income Statement for Small Business

Which accounts go on which statement
How the income statement feeds the balance sheet

Balance Sheet and Income Statement

Every account in a small business's books ends up on one of two statements. Revenue and expense accounts go on the income statement, which shows the profit or loss for a period. Asset, liability and equity accounts go on the balance sheet, which shows the position on one date. The two meet in equity: the year's net income, less what's paid out to the owners, is added to retained earnings on the balance sheet. This page sorts one sample business's year-end accounts into the two statements and shows both formats.

For each statement in depth, see what is a balance sheet and what is a profit and loss statement. For how these two fit with the statement of owner's equity and the statement of cash flows, see small business financial statements.

Billed publishes this page.

Which accounts go on which statement

OpenStax Principles of Accounting, Volume 1 (chapter 5 key terms, opened October 30, 2026) sorts accounts into two groups:

Permanent (real) accounts: "account that transfers balances to the next period, and includes balance sheet accounts, such as assets, liabilities, and stockholder’s equity".
Temporary (nominal) accounts: "account that is closed at the end of each accounting period, and includes income statement, dividends, and income summary accounts".

So the balance sheet carries its balances from one year into the next. The income statement starts each year from zero.

How the income statement feeds the balance sheet

At year-end, the temporary accounts are closed. OpenStax section 5.1 explains that "Closing, or clearing the balances, means returning the account to a zero balance." It sets out the order: "Revenue and expense accounts are closed to Income Summary, and Income Summary and Dividends are closed to the permanent account, Retained Earnings." And it notes that "The balance in the Income Summary account equals the net income or loss for the period."

The same section gives the reason for starting each year at zero: "Having a zero balance in these accounts is important so a company can compare performance across periods, particularly with income."

For the closing steps in the order they're done, see what is the accounting cycle. For the retained earnings calculation, see how retained earnings are calculated.

Sample: one year-end, sorted into two statements

These are sample figures for a fictional small print shop run as a corporation, as in OpenStax's closing chapter. To keep the numbers short, equipment is shown net of depreciation.

Year-end account balances, before closing

Cash $27,000
Accounts receivable $7,000
Equipment (net) $24,000
Accounts payable $4,000
Bank loan $10,000
Common stock $15,000
Retained earnings at the start of the year $12,000
Dividends paid to the owners $5,000
Revenue $90,000
Wages $40,000, rent $12,000, depreciation $6,000, other expenses $10,000

Debits: $27,000 + $7,000 + $24,000 + $5,000 + $68,000 of expenses = $131,000. Credits: $4,000 + $10,000 + $15,000 + $12,000 + $90,000 = $131,000. The books balance.

Income statement for the year (temporary accounts)

Revenue: $90,000
Expenses: $40,000 + $12,000 + $6,000 + $10,000 = $68,000
Net income: $90,000 − $68,000 = $22,000

Retained earnings (closing)

$12,000 at the start + $22,000 net income − $5,000 dividends = $29,000 at year-end

Balance sheet at year-end (permanent accounts)

Assets: cash $27,000 + accounts receivable $7,000 + equipment $24,000 = $58,000
Liabilities: accounts payable $4,000 + bank loan $10,000 = $14,000
Equity: common stock $15,000 + retained earnings $29,000 = $44,000
Liabilities plus equity: $14,000 + $44,000 = $58,000, the same as total assets

After closing, revenue, the four expense accounts and dividends are back at zero for the new year. The seven balance sheet accounts carry their balances into it.

Reading the two together

Profit and position are different questions. The income statement shows that the year earned $22,000. The balance sheet shows where the business stands at year-end: $58,000 of assets, $14,000 of it owed to others.
Follow the profit into equity. Of the $22,000, $5,000 went to the owners as dividends and $17,000 stayed in the business as retained earnings.
Compare like with like. Compare this year's income statement with last year's, and this year-end's balance sheet with last year-end's.

For ratios built from both statements, see what is financial ratio analysis.

Where Billed fits

Billed's financial reporting page says: "See how profitable your business is with Income vs Expense report." It also says: "If you manage multiple businesses in Billed, each business has its own set of financial reports." Ask your accountant how to prepare your year-end statements from your books.

When this guide isn't for you

The sample is a small corporation. A sole proprietor's balance sheet shows owner's equity instead of common stock and retained earnings; see small business financial statements. If your business reports to investors or a lender under specific standards, ask your accountant which formats you need.

Frequently Asked Questions

What is the difference between a balance sheet and an income statement?

The income statement lists revenue and expenses for a period and gives net income or a net loss. The balance sheet lists assets, liabilities and equity on one date. Income statement accounts are closed to zero at the end of each period, and balance sheet accounts carry their balances into the next one.

How are the balance sheet and income statement connected?

Through equity. At year-end, revenue and expenses are closed, and the year's net income, less dividends, is added to retained earnings on the balance sheet. In the sample on this page, $12,000 + $22,000 − $5,000 gives $29,000 of retained earnings.

Do income statement accounts carry over to the next year?

No. OpenStax classes them as temporary accounts: they're reset to zero when the books are closed for the period, so revenue and expenses start each new year empty. Balance sheet accounts are permanent and carry their balances forward.

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Sample Balance Sheet and Income Statement for a Small Business