Question

Difference between trading and profit and loss account and balance sheet

Answer 1

Trading and Profit and Loss account calculates the Net profit/Loss and shows how much profit or loss you a business has made in one accounting year. The balance sheet is used to calculate the total Shareholders funds / Owners Equity / Capital at close.

Answer 2

Basis
Trading Account
Profit and Loss Account

1. Relation

Trading Account is a part of Profit and Loss Account

Profit and Loss Account is the main account

2. Nature

The Gross Profit or Gross Loss are ascertained from the Trading Account.

The Profit and Loss Account is prepared to ascertain the net profit or net loss of the business

3. Transfer of Balance

The balance of the Trading Account is transferred to the Profit and Loss Account.

The Balance of the Profit and Loss Account is transferred to the Capital Account of the proprietor.

4. Items

Items shown in the Trading Account are Purchases, Sales, Stock, direct expenses etc.

Items like indirect expenses related to sales, distribution, administration, finance etc. are shown in the Profit and loss Acc

And after all these transactions there comes balance sheet which stimulates the financial condition of business firm. profit calculated in p&l A/c will be added to capital in balance sheet.

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