The following are the main points of difference between Income and Expenditure Account and Profit and Loss Account.
|Income and Expenditure Account||Profit and Loss Account|
|Summary||Depicts a summarised version of all revenue incomes and revenue expenses of an NPO||Depicts a summary of all revenue incomes and revenue expenses of a profit-making organization|
|Motive||To ascertain surplus or deficit||To ascertain net profit or net loss|
|Basis of Preparation||Prepared on the basis of Receipts and Payments Account||Prepared on the basis of Trial Balance|
|Net Result||The net result is expressed as surplus or deficit||The net result is expressed as net profit or net loss|
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.
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.
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.
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
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.
In order to incorporate adjustments in the financial statements, we pass the required Journal entries, which are termed as adjusting entries.