The correct answer is Option C. The Profit and loss statement is also referred to as the statement of revenues and expenses. It is because the Profit and Loss statement reports all types of revenue that have been earned and all types of expenses that have been incurred during a particular period ofRead more
The correct answer is Option C.
The Profit and loss statement is also referred to as the statement of revenues and expenses. It is because the Profit and Loss statement reports all types of revenue that have been earned and all types of expenses that have been incurred during a particular period of time.
Option A Trading Account reports only the operating revenues and operating expenses.
Option B Trial Balance shows the balances of all the ledgers of a business and is prepared to check the arithmetical accuracy of the books of accounts.
Option D Balance sheet reports the balances of assets and liabilities of a business as at a particular date.
People often confuse the trading and the profit and loss statement to be the same. But they are different.
Trading Account is prepared with aim of arriving at operating profit or gross profit whereas the profit and loss statement is prepared to arrive at the net profit of a business and reports every revenue and expense whether operating or non operating in nature.
Operating revenue and operating expense are earned or incurred respectively are related to the chief business activities of a business.
Features of profit and loss statement:
- It is prepared to measure the net profit of a business hence its profitability.
- It is usually prepared for a period of one year but many companies do prepare quarterly statements to better judge their performance.
- It helps the management in decision making and the other stakeholders like shareholders, creditors to make informed decisions.
Meaning We know that an account in ledger format has two amount columns i.e. debit and credit amount columns. Now, most of the time, the total of debit and credit sides do not match. The difference between their totals is called the balance of the account and it is posted on the shorter side. ThisRead more
Meaning
We know that an account in ledger format has two amount columns i.e. debit and credit amount columns. Now, most of the time, the total of debit and credit sides do not match. The difference between their totals is called the balance of the account and it is posted on the shorter side. This result in equalling the total of both sides, hence this act is called ‘balancing an account.
Types of balances
Balancing an account is a very usual practice so that the balance of an account can be known. An account can have two types of balances:
The balance of an account is posted on the shorter side. It means:
Example
The following is a cash account that is not balanced:
We can see the debit side is ₹800 more than the credit side. It means there is a debit balance. It will be posted on the credit side as ‘By balance c/d’ to balance the account.
Exceptions
Balance of the income and the expense accounts (nominal accounts)are not computed. Instead, they are closed to trading account or profit and loss account to balance their amount totals. For example, the salaries account and sales accounts
Only the balance of the following types of accounts are computed and carried forwarded to successive accounting years:
The balance of these accounts is shown on the trial balance and balance sheet as well.
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