Difference between Income and Expenditure Account and Profit and Loss Account

The following are the main points of difference between Income and Expenditure Account and Profit and Loss Account.

Basis of
Distinction
Income and Expenditure AccountProfit and Loss Account
SummaryDepicts a summarised version of all revenue incomes and revenue expenses of an NPODepicts a summary of all revenue incomes and revenue expenses of a profit-making organization
MotiveTo ascertain surplus or deficitTo ascertain net profit or net loss
Basis of PreparationPrepared on the basis of Receipts and Payments AccountPrepared on the basis of Trial Balance
Net ResultThe net result is expressed as surplus or deficitThe net result is expressed as net profit or net loss

Also, Read

Interest on Capital

Any interest paid on capital is considered as an expense and is shown in the Profit and Loss Account. Treatment of interest on capital in the final accounts is as follows.

Interest on Drawings

Treatment of interest on drawings in the final accounts is as follows. Firstly, interest in drawings is shown on the credit side of the Profit and Loss Account.

What is Operating Profit?

Operating Profit can be defined as the profit earned by carrying the normal business activities. It is computed by subtracting the operating expenses from the gross profit.

Balance Sheet

The balance sheet is the last financial statement that is prepared by any organization. This statement helps to ascertain the true financial position of an enterprise at the end of an accounting period

Profit and Loss Account

A profit and Loss Account is the second financial statement prepared by an organization. This account is prepared to ascertain the net results of a firm in form of net profit earned or net loss incurred during an accounting period.

What are Adjusting Entries?

In order to incorporate adjustments in the financial statements, we pass the required Journal entries, which are termed as adjusting entries.

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