What is the Difference Between Balance Sheet and Profit & Loss Account?

Difference Between Balance Sheet and Profit  Loss Account

Balance sheet, or referred to as position statement, reveals the company’s financial position on a particular date. It shows that all the ownership, i.e. owings and assets, and the company’s liabilities. 

Profit & loss account, also called the income statement, discloses the revenue and expenses made by the company in a fiscal year.

The balance sheet and the profit & loss account are essential for financial statements, suggesting that without both statements, a financial statement could not be published. This is because these statements tell the position of the company, overall performance and its profitability (Also see Accounting Tasks That You Should Complete Before New Year).

  • The profit & loss account is prepared for a specific duration, whereas the balance sheet is made at a particular date, usually when the completion of the fiscal year.
  • The profit & loss account shows the financial performance of a company, i.e. revenue made or loss by the company for a particular duration, while the balance sheet shows the financial position of the company. 
  • The profit & loss account is a statement that shows the detail income and expenses while the balance sheet is a statement that consists of liabilities and assets.
  • The profit & loss account represents the expenses and revenue of a company, whereas the balance sheet provides a summary of liabilities, equity and assets of the company. 
  • The balance sheet is prepared based on the balances from the profits & loss account.

Conclusion

The balance sheet and profits & loss account are greatly significant. Through the balance sheet, the readers could comprehend the financial stability, solvency and liquidity of a company (Also see Introduction to Permanent and Temporary Accounts).

On the other hand, the profit & loss account helps to compare the company’s performance. Both statements contain items with different nature, which is why the possibilities of getting baffled about these statements are less (Also see Why is Efficient Bookkeeping Vital for Annual Compliance in Johor Bahru?).

If you are still confused about the difference between the balance sheet and the profit & loss account, do not hesitate to reach out to accounting firm in Johor Bahru for further guidance.