Difference between the Profit and Loss account and Balance Sheet

Difference between the Profit and Loss account and Balance Sheet

Difference between the Profit and Loss account and Balance Sheet:-

The Profit and Loss account is the statement of income and expenses which showing the net profit and loss for the particular period while balance sheet is the statement of assets, liabilities and capital which showing the actual financial position of an entity. To know more about the Difference between the Profit and Loss account and Balance Sheet we have to clear the meaning of both the terms. So, first we will discuss the meaning of Profit and loss account and Balance sheet follows: –

Profit and loss account : –

It is the statement which shows the all indirect expenses incurred and indirect revenue earned during the particular period. It is prepared to find out the Net Profit/loss of the business for the particular accounting period. It is calculated by deducting indirect expenses from the Gross Profit/Loss. and adding indirect income/revenue int the Gross Profit/Loss.

Net Profit/Loss =  Gross Profit/Loss + Indirect Income – Indirect Expenses

  • Indirect Income = Other incomes which are earned from Business other than the main operation of the business.
  • Indirect Expense = All business expenses other than direct expenses.

The Balance sheet:- 

It is the statement showing the financial position of the business in the particular accounting period. It is a list of balances of ledger account of assets, capital and liabilities. The value of assets shows which we can realize from the market and The value of Liabilities shows which we have to pay in future. Capital shows the amount invested by the owner into the business entity. it is the basis on the following account equation.

 

Assets = Capital + Liabilities

 

Chart of Difference between the Profit and Loss account and Balance Sheet: –

Basis of Difference

Profit and loss account

Balance Sheet

Meaning
Profit and loss account is the statement which shows the all indirect expenses incurred and indirect revenue earned during the particular period. The Balance sheet is the statement showing the assets and Liabilities/capital of the business at the end particular accounting period.
Object 
It is prepared to know the Net profit or Loss of the business for a particular period. It is prepared to show the true or fair financial position of an entity.
Accounts Included 
It includes only one type of accounts. i.e. Nominal account. It includes only two type of accounts. i.e. Real and  Personal accounts
Gross Profit/ Loss
Profit and loss account does provide information about Gross Profit/loss for the year. Balance Sheet does not provide information about Gross Profit/loss for the year.
Dependency
The Profit and Loss account is not dependent on the Balance sheet Because it is prepared before the preparation of Balance sheet. The balance sheet is dependent on the Profit and loss account because Information about Net Profit/Loss collected from Profit and Loss account.
Balance 
It has the Balance amount, which represents the net profit/loss for the year. Debit balance means net Loss if Credit balance it means Net Profit. Both side of the balance sheet always equal to each other. So, it does not has a balance amount.
Classification of Accounts
In Profit and Loss account, only nominal accounts are classified into the balance of Incomes/gains and Expenses/loss. In Balance Sheet, personal and real accounts are classified into the balance of assets, liabilities and capital.
Time of Preparation 
It is prepared after preparing a Trading account and before the preparation of the Balance sheet. It is prepared after preparing Trading and Profit&Loss account.
Sides of Statement
Profit and loss account has two sides, on the left side, all expenses and losses are posted and on the right side, all incomes and gains are posted. The Balance Sheet also has two sides(In horizontal form), on the left side, all Liabilities and Capital are posted and on the right side, all accounts of assets are posted.
Information about Stock or inventories 
In the Profit and Loss account, No Information is provided for opening or closing stock. In the Balance Sheet, Information is provided only for cLosing stock.

If you want to Download the chart please download the following image and PDF file: –

Char of Difference between the Profit and Loss account and Balance Sheet 264x300 - Difference between the Profit and Loss account and Balance Sheet
Chart of Difference between the Profit and Loss account and Balance Sheet

 

application pdf - Difference between the Profit and Loss account and Balance Sheet

Chart of Difference between the Profit and Loss account and Balance Sheet.pdf

The conclusion of Difference between the Profit and Loss account and Balance Sheet: –

These both Statements are very opposite to each other. The profit and loss account is prepared only with the balance of Nominal accounts but the balance sheet is prepared with balances of real and personal accounts.

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