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Any company trying to complete financial statement will have few important accounts and statements such as trading accounts, profit and loss account and balance sheet. The balance sheet is occasionally named position statements whereas the other important accounts mentioned are falling under income statements. When writing down the difference between these two statements some points become very clear:
| Numbers | Profit and Loss Account (Income statements) | Balance Sheet (Position statements) |
| 1) | The Profit and Loss account is prepared in order to calculate the company’s net profit or loss. | The balance sheet is prepared to measure the financial standpoint of the business. |
| 2) | Profit and Loss account is by nature an account. | Balance sheet may possess entries in both sides but this is a statement rather than an account. |
| 3) | Profit and Loss account has debit account in its left and credit account in its right side. | There is no debit or credit account name in the balance sheet. There are liabilities in the left and assets in the right side. |
| 4) | Profit and Loss account will be prepared in order to notify the position of the business after the accounting period which is generally a year. | Balance sheet shows the available assets and liabilities of the company after the end of the decided time period. |
| 5) | The balance of the Profit and Loss account is either net profit remaining in the credit side or net loss remaining in the debit side. | Balance sheet will never have balance. The entries done in assets and liabilities’ sides are equal at the end. |
| 6) | Nominal accounts and revenue expenditures will come under this account. | Personal and real accounts will show under balance sheet. All capital expenditures will be written under assets. |
Links of Previous Main Topic:-
- Book keeping
- Meaning of gaap
- Origin of transaction
- The concept of debit and credit
- Subsidiary books or sub division of journal
- Balancing of ledger accounts
- Meaning of trial balance
- Balance sheet in final accounts without adjustments
Links of Next Accounting Topics:-
- Features or characteristics balance sheet
- Limitations of final accounts or financial statements
- Meaning of financial statements or final accounts
- Need or importance and purpose of trading account
- Need or purpose and importance of profit and loss account
- Performa of balance sheet
- Performa profit loss account
- Performa of trading account
- Points to be considered before creating balance sheet
- Profit and loss account final accounts without adjustments
- Trading account final accounts without adjustments
