Commercial Applications
Give five differences between Profit and Loss Account and Income and Expenditure Account.
Answer
| S.No. | Basis of Distinction | Profit and Loss Account | Income and Expenditure Account |
|---|---|---|---|
| 1. | Object | It is prepared to calculate the net profit or net loss of a business concern. | It is prepared to ascertain the surplus or deficit of a non-trading organisation. |
| 2. | Nature of Organisations | It is prepared by trading organisations which seek to earn profit. | It is prepared by non-trading organisations which do not seek to earn profit. |
| 3. | Method/Basis of Preparation | It is prepared on the basis of the Trial Balance. | It is prepared on the basis of the Receipts and Payments Account along with other adjustments. |
| 4. | Balance | The closing balance shows net profit or net loss for the year. | The closing balance shows surplus or deficit for the year. |
| 5. | Contents | It does not contain items like subscriptions, donations, entrance fees, etc. | It contains typical non-trading items like subscriptions, donations, entrance fees, legacies and life membership fees. |