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Question
Distinguish between a Profit and Loss Account and a Balance Sheet.
Solution
| S. No. | Basis of Distinction | Profit and Loss Account | Balance Sheet |
| 1. | Purpose | It is prepared to ascertain the net profit or net loss. | It is prepared to know the financial position. |
| 2. | Period | It presents the results of business for a particular period, usually one year. | It is prepared at a particular date. |
| 3. | Nature | It is an account. | It is a statement. |
| 4. | Headings | Its two sides are called income and expenses. | Its two sides are called assets and liabilities. |
| 5. | Contents | It contains all the nominal accounts. | It contains all the real and personal accounts. |
| 6. | Difference | The difference in the totals of the two sides represents the net profit or net loss. | Its two sides are equal in total. |
| 7. | Effect on accounts | The accounts transferred to it are closed and no balance exists in these accounts. | The balances of accounts included in the balance sheet are brought forward in the next year. |
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