A useful analogy is that a balance sheet is like a snapshot of the firm at an instant in time,
whereas an income statement is a summarized moving picture of the firm over an interval
of time. It is also useful to note that revenue serves to increase owners’ interests in a firm,
but an expense serves to decrease the owners’ equity amount for a firm.
To illustrate the workings of accounts in reflecting the decisions and actions of a
firm, suppose that an individual decides to undertake an investment opportunity and the
following sequence of events occurs over a period of one year: