Difference between Balance Sheet and Profit & Loss Account
Basis |
Balance Sheet |
Profit & Loss Account |
---|---|---|
Meaning | Balance Sheet is prepared to provide the financial position of the company at a specific time span. | Profit & Loss Account means a concept that summarizes the revenues, expenses, gains, and losses of a company over a specific time period (year or quarter). |
Components | Balance Sheet has the components like Assets, Liabilities, and Equity of Stakeholders. | Profit & Loss Account consists of the components like Revenues, Expenses, Gains, and Losses. |
Motive | The motive of the Balance Sheet is to showcase the liquidity and stability of the company business. | The motive of the Profit & Loss Account is to evaluate the company’s profitability and the undergoing performance. |
Equation | Assets = Liabilities + Shareholder’s Equity | Revenues – Expenses = Net Profit (or Net Loss) |
Carryover of Balances | The ending balance of one time period becomes the opening balance for the upcoming period. | The net profit or the net loss is actually transferred to the Balance Sheet as the accumulated loss or retained earnings. |
Valuation | Balance Sheet represents the boot value of Assets and Liabilities. | Profit & Loss Account report the actual value of Revenues and Expenses on entities. |
Presence of Non-Monetary Items | Balance Sheet also consists of Non-Monetary items like accrued or advance income, etc. | Profit & Loss Account has only monetary items. |
Difference between Balance Sheet and Profit & Loss Account
The accounting process ends with the preparation of the financial statement. The information about the financial position of any company is provided with the help of Financial Statements. Balance Sheet and Profit & Loss Account are two such statements that are prepared to understand the financial position of the company. Balance Sheet and Profit & Loss Account are actually prepared as an equivalent part of the company’s financial reporting process, which plays a significant role in helping shareholders like investors, creditors, and management to actually measure the company’s profitability and stability from various perspectives.