Balance Sheet vs. Profit and Loss: Differences

Balance Sheet vs. Profit and Loss is a comparison often made.

Do you know the difference between these two important financial statements?

One question every hotel manager must be having is:

What is the difference between profit and loss account and balance sheet?

It is critical that you know this.

Why, you ask?

Because it will allow you to harness them for powerful decision making in the operation.

You would want that would you not?

Let's find out how and why right away.

Profit and Loss

The Profit and Loss Statement [or Income Statement as it is also known as] is a performance statement.

Performance is a word that is often misquoted and misunderstood.

Moreover, it is a generic word.

It can mean so many different things.

Performance can also mean different things at different times.

Say, one of your professional colleagues from other hotels asks you:

How did your hotel perform in the past month?

What would you say?

Would you tell them about the: 

• occupancy in that past month?
• average daily rate achieved in that past month?
• total revenue achieved in that past month?
• gross operating profit achieved in that past month?

Do you see what I am getting at?

The hotel profit and loss statement shows performance represented by:

• revenue
• expenses and
• profit (net income)

Now, let us see what the other key financial statement is all about.

Balance Sheet

The Hotel Balance Sheet can be called The Financial Position Statement.

It literally tells you about the long and short term health of your hotel business.

The hotel balance sheet shows financial position represented by:

• assets
• liabilities and
• owner equity(capital)

So, you see how different these two financial statements are.

Despite the differences, there is a powerful relationship between the two.

It is performance that enhances the financial position.

The Full Monty

Want to know how the balance sheet and profit and loss are related in a powerful manner?

Read the full post on Hotel Balance Sheet - How Is It Related to The Hotel Profit and Loss Statement?.

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