Meaning of Profit And Loss Account
Profit & Loss account is perpared to calculate the net profit or loss of the buisness for a given accounting period.If the total of credit side exceed the total of debit sides the difference will represent net profit.In the reverse situation,the difference will represent net loss.
Utility of Profit And Loss Account
Profit & Loss account provides information about the net profit or net loss earned or suffered by the business during a particular accounting period.An analysis of the various expenses included in the profit & loss account and their comparison with the expenses of the previous period helps in talking concrete steps for effective control over the expenses.
Meaning of Balance Sheet
The balance sheet may be defined as “A statement which set out the assets and liabilities of a firm as at certain date”.Since even a single transaction will make a difference to some of the assets or laibilities,the balance sheet is true only at a particular point of time.This is the significance of the words”as at”.Accounting refers to “Summarizing in a significant manner”.It means that summarizing must be done in such a way as to create a definite sense.
Utility of Balance Sheet
Balance sheets is prepared with a view to measures the true financial position of a buisness concern at a particular point of time.At one glance,the position of the buisness,at a particular point of time,can be understood.By looking at the balance sheet one can know whethere the firm is solvent or not.If the assets exceed liabilities it is solvent,in the other case,it would be insolvent. Balance sheet is prepared to provide the following information: