Accounting 101: Part 2

Once you’ve recorded transactions like the ones in Part 1, two reports summarize them: the balance sheet and the profit & loss (P&L).

The balance sheet

A balance sheet is a snapshot: what you have, what you owe, and what’s left over, as of a specific date. It only shows three kinds of accounts — assets, liabilities, and equity.

Notice what’s missing: no Membership Dues, no Event Expenses. Income and expense accounts don’t live on the balance sheet — they belong to the P&L, below. Assets always equal liabilities plus equity ($2,400 = $150 + $2,250) — that’s the whole reason it’s called a “balance” sheet.

Where does this year’s activity go?

While your fiscal year is still open, the income and expenses you’ve recorded so far don’t automatically fold into Carry Over Funds — they show up as their own line, usually called Net Income, sitting alongside equity:

$2,400 still equals $150 + $1,800 + $450. Net Income is this year’s income minus this year’s expenses so far — it’s just sitting apart from your carried-over balance until the year is formally closed. (More on that in Part 5 — for now, just know it’s there.)

The profit & loss

The P&L (also called an income statement) covers a date range instead of a single point in time, and it’s built from the accounts the balance sheet leaves out: income and expenses.

Total income minus total expenses gives you Net Income — the same number that showed up on the balance sheet above.

Next: Building a Budget