In this article, we have discussed the difference between Profit and Loss and Balance Sheet.
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. Similar to the Trading Account, the Profit and Loss Account is also a nominal account in which all the expenses or losses are debited and all the incomes or gains are credited. This account begins with a recording of the gross profit (or gross loss) depicted by the Trading Account.
On the other hand, 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. It is a statement that is prepared to ascertain the values of assets and liabilities of a business on a particular date.
Difference between Profit and Loss Account and Balance Sheet
The given below are points of distinction between Profit and Loss Account and Balance Sheet
| Basis of Difference | Profit and Loss Account | Balance Sheet |
|---|---|---|
| Purpose | It is prepared to ascertain the net profit or net loss during the year. | It is prepared to reveal the financial position of the business at the end of the year. |
| Account/Statement | It is an account. | It is a statement. |
| Nature of Account | This records only nominal account balances. | This records the personal and real account balances. |
| Recording | All incomes and expenses are recorded in this account. | All assets and liabilities are recorded in this statement. |
| Sides | The left-hand side records all the expenses and losses and the right-hand side records all the incomes and gains. | The left-hand side records all the liabilities and the right-hand side records all the assets. |
| Balancing | The two sides, i.e., debit and credit sides are not equal to each other and the balancing figure either reveals the net profit or a net loss. | The two sides, i.e., assets and liabilities are always equal to each other and thus it does not reveal any balancing figure. |
| Nature of Items | It records the items of revenue nature. | It records the items of capital nature. |
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