Difference Between Trading And Profit And Loss Account

Difference Between Trading And Profit And Loss Account

The main dissimilarities or difference between trading account and profit and loss account can be pointed out as follows:

1. Meaning

Trading Account: It records trading activities (buying or selling of goods) for a particular period.

Profit And Loss Account: It is prepared to represent net profit or net loss for a particular period.

2. Objectives

Trading Account: The objective of preparing trading account is to ascertain trading results (gross profit or gross loss) for the specific period.

Profit And Loss Account: The objective of preparing profit and loss account is to ascertain net profit or net loss at the end of accounting period.

3. Component Of Final Account

Trading Account: Preparing trading account is the first step of final account. So, it is a first component of final account.

Profit And Loss Account: It is prepared after preparing trading account. So, it is a second step or component of final account.

4. Dependency

Trading Account: It does not depend on any account.

Profit And Loss Account: Balance of trading account is needed to prepare profit and loss account. So, it depends on trading account.

5. Stock Adjustment

Trading Account: Stock should be adjusted while preparing trading account.

Profit And Loss Account: No stock adjustment is needed to prepare profit and loss account.

   

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Difference Between Trial Balance And Balance Sheet

6. Recording

Trading Account: All direct expenses and revenues are recorded in this account.

Profit And Loss Account: All indirect expenses and indirect incomes are included in this account.

7. Balance Transfer

Trading Account: Balance of trading account (gross profit or gross loss) is transferred to profit and loss account.

Profit And Loss Account: Balance of profit and loss account (net profit or net loss) is transferred to balance sheet.

Trading Account Vs Profit And Loss Account (Comparison Chart)

Basis For Difference	Trading Account	Profit And Loss A/C
Introduction	Statement prepared to record the trading activities of the firm for a particular period	Statement prepared to show the net profit or loss of the firm
Objective/Purpose	To find out gross profit or loss	To find out net profit or loss
Step Of Final Account	First step	Second step
Dependency	Not dependent on other accounts	Dependent on trading account
Stock Adjustment	Needed	Not needed
Recording Of	Direct expenses and direct revenues	Indirect expenses and indirect incomes
Balance Transfer	To profit and loss account	To balance sheet

I hope this post is helpful to understand the difference between trading account and profit and loss account and to make comparison between them.