A summary is given below of the differences between the profit and loss account and balance sheets.

Profit and Loss Account

Balance Sheet

An account Not an account—it is a statement of assets and liabilities
The second stage of final accounts, prepared before the balance sheet The last stage of final accounts, prepared after the Profit & Loss account
Prepared for a period of time (so the heading will be Profit & Loss A/c for the year ended 31.12.2019) Prepared at a point in time (so the heading will be Balance Sheet as of 31.12.2019)
The objective is to ascertain the true profit or loss of the business The objective is to show the true financial position of the business

Frequently Asked Questions

What is the difference between profit and loss account and balance sheet?

A profit and loss account (P&L) reports the true financial position of the business, i.e. whether you are making a profit or loss over a period of time. A balance sheet reports your assets/liabilities at a point in time so will never show if you've made a profit or loss.

How do you prepare a balance sheet?

Balance sheet is prepared by putting all your assets on one side and all your liabilities and capital on the other side. Your equity is calculated as the difference between the two sides.

What are liabilities?

Liabilities are an obligation or debt that must be repaid by a certain date.

What are accounts?

Accounts show our financial position by recording our assets, liabilities and equity.

What are the types of accounts?

The following are types of accounts: assets, liabilities, equity, revenue/income, expenses/loss, capital

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