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Difference between Profit and loss accounts (Income Statement) and Balance sheet (Position Statement)

Income statement (Trading and profit and loss account) and position statements (Balance sheet) can be differentiated as under :


Points of Difference Profit and Loss Account Balance Sheet
1. Types of account Only nominal accounts are entered in profit and loss account. It records personal and real accounts.
2. Objective The objective of preparing profit and loss account is to ascertain the net profit or loss of the business. The purpose of preparing balance sheet is to understand the financial position of the firm.
3. Sides The left hand side of the profit and loss account is the debit and the right hand side is credit. It has liabilities at its left hand side and assets at right hand side.
4. Nature Profit and loss account is an account. We use the word ‘To’ before accounts at the debit side and ‘ By’ at the credit side. Balance sheet is not an account, it is a statement.

We do not use ‘To’ or ‘By’ in it.

5. Balancing figure The balancing figure of the profit and loss account is either net profit or net loss.

Excess of credit side is net profit and the excess of debit side is net loss.

It does not show any balancing figure. The total of assets and liabilities are always equal.
6. Specific date/


Profit and loss account shows the position of the accounting period, generally a year. Balance sheet shows the position of assets and liabilities on a particular date.
7. Types of


Revenue expenditures are recorded in the profit and loss account. Capital expenditures are entered at the assets side of the Balance Sheet.