What is difference between profit and loss account and trading account?

The major differences between profit and loss account and trading are as follows −

Profit and loss account

• Represents profit earned or loss sustained.

• It ascertains net profit for a period.

• The balance is transferred to the capital account.

• Operating and non-operating incomes and expenses.

• It is prepared after trading account.

• The second step in preparing final account.

• It is dependent on trading account.

• It is treated directly in the balance sheet.

• It discloses true and complete results of a business.

Trading account

• Represent trading activities.

• Ascertain gross profit for a period.

• Balance is transferred to profit and loss account.

• Direct revenue and direct revenue.

• Prepared before the profit and loss account.

• Primary step in preparing final account.

• Not dependent on trial balance.

• Not treated directly in the balance sheet.

• Discloses partial results of the business.