What is meant by Balance Sheet, Trading Account and Profit & Loss Account? Why are
they prepared ?
Answers
Answer:
Balance Sheet: It is not an account. It is a statement. It is prepared to know the financial position of business on a particular date.
Trading Account: it is a nominal account.It is prepared to get gross loss and gross profit.
profit and loss account: it is a nominal account. It is prepared to know the net profit and net loss.
Answer:
Trading account is used to record the direct expenses and incomes of a firm. The difference of the income and expense of trading account is called gross profit or gross loss which is taken forward to profit and loss account.
Profit and loss account (P&L) is used to record the selling and distribution expenses and other incomes. The difference is called Net profit or net loss. It is taken forward to capital account in the balance sheet.
Balance sheet unlike P&L account and trading account is a statement. It records liability on one side and assets on one side. Both the sides are always equal.