Profit & Loss and Balance Sheets

Think of a basketball game. The scoreboard tells you what happened during the game. Points scored, points conceded, and whether you won or lost. That is your profit and loss statement. It captures a period of activity. Revenue comes in, expenses go out, and the difference is your profit or your loss. When the buzzer sounds, the score resets to zero, and the next game begins. Every financial year starts fresh, but the scoreboard does not tell you how good the team actually is. For that, you need to look at the roster.