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.
Also Read:
Also Read:
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)
I hope this post is helpful to understand the difference between trading account and profit and loss account and to make comparison between them.
Trading Account Vs Profit And Loss Account (Comparison Chart)
Basis For Difference
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Trading Account
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Profit And Loss A/C
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Introduction
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Statement prepared to record the trading activities of the firm for a particular period
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Objective/Purpose
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To find out gross profit or loss
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To find out net profit or loss
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Step Of Final Account
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First step
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Second step
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Dependency
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Not dependent on other accounts
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Dependent on trading account
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Stock Adjustment
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Needed
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Not needed
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Recording Of
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Direct expenses and direct revenues
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Indirect expenses and indirect incomes
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Balance Transfer
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To profit and loss account
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To balance sheet
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I hope this post is helpful to understand the difference between trading account and profit and loss account and to make comparison between them.
