Difference Between Profit Loss Account and Balance Sheet Homework Answers
In this digital world, business and accounting go hand in hand where hitting the profit margin, and revenue generation not only stay in the talk, but it comes on paper as a form of proof. Financial accounting experts derive every piece of data from various departments of the company.
After combining data from hiring staff, training team, managers, manufacturing section, transport team, etc. financial experts convert the received data into readable information. From that information, the financial position of the enterprise can be deduced based on certain points.
Accountants prepare the statements for different purposes of information to get a peek into one area of business finances.
The difference between profit loss account and balance sheet homework answers explains the two primary statements here, profit loss account and balance sheet. This article will also cover the differences between profit loss statement and balance sheet.
Before we are headed towards the differences of two significant statements, we will understand the meaning of each.
Profit Loss Account Statement in details:
Statement of profit and loss is commonly referred as the income statement and in short form P&L statement as well. The statement of profit and loss account used to represent financial performance of the business for the particular period.
How is the income statement written in accounting finance of enterprises?
Difference between profit loss account and balance sheet homework answers explains with the steps for the better understanding of the topic.
- Count the sales
- Subtract the raw material cost
- Subtract the overhead expenses
- Deduct the labor cost
- Add received profit, payments, etc.
- Now whatever the number remains becomes profit or loss for the company.
Balance Sheet in the business accounting:
The balance sheet is prepared to demonstrate the financial entity of business as per given date. It means how is the condition of business on the date.
It has two sections in the sheet.
Assets which can be converted into cash within a year are considered as assets with current and noncurrent assets. For example, receivable payments, cash on hand, etc.
Liability and equity section includes everything that has to be paid within a year with present and noncurrent liabilities. For example, small loans, payable bills.
The difference between profit loss account and balance sheet homework answers have explained what each term means concisely as of now. So, you must have the idea that what balance sheet and income statement are created for and how.
Now we will understand the fundamental differences between the most important statements of the business in an elaborative way.
What are the basic differences?
Difference 1: What each financial term is?
The profit and loss statement of the income statement is an account which is used to calculate the financial accounting of profit and loss.
On the other side, a balance sheet is just a statement which represents a financial condition of a company.
Difference 2: The meaning of each term in the world of accounting
The income statement demonstrates the revenue as well as expenses over the period of time in this accounting.
While balance sheet report shows the assets, equity and liability of the company at a specific date of the business.
Difference 3: When does each report is generated for the firm?
Difference between profit loss account and balance sheet homework answers gives the time when each report is generated.
The profit and loss statement report is generated for the whole financial year to calculate the financial transactions of the firm and get a complete overview of a year. Based on that, the company can decide if it did gain financially or not. The decision of near future for the company depends on the result of this report.
The balance sheet is generated on the last day of the financial year to represent the commercial image of the company and what the company is worth at current day.
Difference 4: What are the information contained in each financial report?
After knowing the previous differences, you will get a rough idea of what is covered in the profit loss statement and balance sheet report. The statement of profit and loss includes income of the firm, every expense of the company, gains, and losses of any kind.
On the contrary, the balance sheet shows the assets, liability, and equity of shares for the business.
Difference 5: In which order the financial reports are prepared?
As per explanation of difference between profit loss account and balance sheet homework answers profit and loss statement is given priority for the preparation.
The balance sheet is created at the end of financial year so it would come after the generation of the profit and loss statement.
Difference 6: What happens to accounts after the declaration of profit and loss, and the balance sheet is created?
The accounts of profit and loss are ceased to exit and closed after they transferred to profit and loss.
Whereas, the accounts used for the creation of balance sheet are kept as they are and the balance of them is carried forward for the next year calculation of balance.
Difference 7: The representation
The last difference shows that the profit and loss account is used to get an idea of the financial performance of the business in the last year.
The balance sheet is used to get knowledge about the financial position of the firm after the year of financial performance.
Each document in business shows different perspective of it and difference between profit loss account and balance sheet homework answers advises each of them should be created in a particular manner that it can help the business expand and foresee the future for better planning.