1. Describe the nature of balance sheet or statement of financial position.

The balance sheet is a financial report that is created from the trial balance. When preparing the balance sheet, the trial balance is used as a starting point. All trial balance accounts are aggregated into balance sheet elements. The balance sheet provides a snapshot of a company’s financial position on a given date. This report contains a total of all assets, liabilities and shareholders’ equity. The most important concept in the balance sheet is that the total assets should equal the total liabilities plus shareholders’ equity. On one side of the balance sheet all of the assets are listed. The other side of the balance sheet lists the liabilities and shareholders’ equity. Assets are considered to be all property or valuable rights that are owned by the company. Assets can include items such as property, cash, and inventory. Liabilities are the financial debts and obligations owed by the company. Items in the liability section can include accounts payable and long term debt. The shareholders’ equity is the difference between the total assets and total liabilities and represents the residual value of the company, after liabilities, to the shareholders’. The most common items shown in the shareholder’s equity section are common stock, preferred stock, additional paid-in capital, and retained earnings.

2. Describe the nature of income statement

An income statement is the component of financial statements which summarizes a business's operations for a period of time. It provides information about the company's revenues, its operating expenses, finance costs, gains and losses, income taxes, net income and the earnings per share (EPS).
Income statements are helpful, because they will give you some history of the business in order to budget for future operations and assess risk