Chart of Difference between the Trading and Profit & Loss account: –
Basis Trading Account Profit and Loss Account
The trading account is prepared to find out the gross Profit and loss account or Income statement is
Meaning profit of the business for the particular accounting prepared to find out the Net Profit/loss of the
period business for the particular accounting period.
Trading Account is prepared before the P&L Profit/Loss Account is prepared after the Trading
Timing
account account
To get to know the Gross profit or loss of the
Purpose To get know Net profit or loss of the business
business.
Stage It is the first stage of the final account. it is the second stage of the final account.
It is a first statement of the final accounts so it is not
Dependency It is dependent on the Trading account.
dependent on the Profit & loss account.
In the trading account, the ledger accounts related to In the Profit and Loss Account, the ledger accounts
Accounts the Direct Expenses and Direct incomes are related to the Indirect Expenses and Indirect
posted. incomes are posted.
The balance (either Gross profit or Gross The balance (either Net profit or Net Loss) of the
Transfer
Loss) of the Trading account will be transferred to Profit and loss account will be transferred to the
of Balance
the Profit and loss account. Balance Sheet.
The trading account is not treated directly in the
balance sheet. The Balance of the Trading account
Treatment in The profit and loss account is treated directly in the
is transferred to the Profit and loss account only.
the balance balance sheet by adding or subtracting from the
then the combined effect of both accounts is posted
sheet capital.
in the balance sheet either by Net profit or by the net
loss.
Basis Trading Account Profit and Loss Account
The trading account is prepared to find out the gross Profit and loss account or Income statement is
Meaning profit of the business for the particular accounting prepared to find out the Net Profit/loss of the
period business for the particular accounting period.
Trading Account is prepared before the P&L Profit/Loss Account is prepared after the Trading
Timing
account account
To get to know the Gross profit or loss of the
Purpose To get know Net profit or loss of the business
business.
Stage It is the first stage of the final account. it is the second stage of the final account.
It is a first statement of the final accounts so it is not
Dependency It is dependent on the Trading account.
dependent on the Profit & loss account.
In the trading account, the ledger accounts related to In the Profit and Loss Account, the ledger accounts
Accounts the Direct Expenses and Direct incomes are related to the Indirect Expenses and Indirect
posted. incomes are posted.
The balance (either Gross profit or Gross The balance (either Net profit or Net Loss) of the
Transfer
Loss) of the Trading account will be transferred to Profit and loss account will be transferred to the
of Balance
the Profit and loss account. Balance Sheet.
The trading account is not treated directly in the
balance sheet. The Balance of the Trading account
Treatment in The profit and loss account is treated directly in the
is transferred to the Profit and loss account only.
the balance balance sheet by adding or subtracting from the
then the combined effect of both accounts is posted
sheet capital.
in the balance sheet either by Net profit or by the net
loss.
