Difference between Trading Account and Profit and Loss Account

True Tamplin

Written by True Tamplin, BSc, CEPF®
Updated on June 22, 2021

Below is the difference between Trading Account and Profit and Loss Account.

Trading Account

Profit and Loss Account

Trading Account is the first stage of Final Accounts. As it is prepared before preparing Profit & Loss Account. It is the second stage of Final Accounts,
As it is prepared after preparing Trading Account.
It shows gross profit or loss of business. It shows net profit or loss of business.
If any mistake is committed to it, Profit & Loss Account will be wrong. In case of any mistake in it, Trading Account will not be affected.
Direct expenses such as expenses connected with purchase and productions of goods and expenses incurred to bring the goods in salable condition are considered in it. Indirect expenses such as expenses relating to sales and administration of business are charged to this account.
True results of business cannot be ascertained through it. It discloses partial results of the business. It discloses the true and complete result of business.
It does not start with the balance of any account. It starts with the balance of Trading Account.
Its balance is transferred to the Profit and Loss Account. Its balance is transferred to Capital Account in case of sole proprietorship firm and to Profit & Loss Appropriation Account in cases of partnership firm and Joint Stock Company.

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