Income Statement vs
Profit and Loss Account

by Shai

Q: What is the difference between the income statement and the profit and loss account?

The income statement is a statement (a report) which forms part of all the financial reports, called the financial statements.

Income Statement

The profit and loss account ("account" not "statement") is one of the T-accounts. But this profit and loss T-account is a special kind of T-account with a special role.

You see, the profit and loss account is really only opened at the end of the year. The rest of the year it has a zero balance (in other words, it virtually does not exist). It is used right at the end of the year to calculate the profit or loss for the year.

Profit and Loss T-account

The balance of the profit and loss account at the end of the year represents the net profit or loss for that year - which is the same figure we show as the net profit or loss in the income statement (in the profit and loss account above, this comes to $80,000).

At the end of each year this balance is then transferred to owners equity, as profits or losses belong to the owner. The specific name of the owner's equity account this goes to is retained earnings (also known as "accumulated profits").

For a business that sells products, the net profit or loss in the profit and loss T-account (the balance of the account) is calculated by transferring the gross profit from another account called the trading account and then transferring all other business expenses into this profit or loss account too (expenses such as salaries and wages, insurance, rent, etc.). This then gives a balance which represents the net profit or loss for the year.

The profit and loss statement ("statement" not "account") is the same as the income statement - it's another term for the same report (click the link here for an example and full lesson on the income statement / profit and loss statement).

Hope that makes sense and that you now understand the difference between these accounting terms!

All the best in your studies!

Michael Celender

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Comments for Income Statement vs
Profit and Loss Account

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Very good
by: Umar

Thank you so much, sir for giving the most informative answers to our questions.

The basic difference between Profit & Loss Account and Income Statement
by: mahbub mmhem

The Income Statement shows the profit/loss for any date/day of the year while a Profit & Loss Statement reports profit/loss for the whole accounting period.

Profit and Loss
by: Strategic Management

This is a very informative article. Properly analyzing your profit and loss statement is vital to business growth.

by: L.VENU

Profit and loss a/c is an account which have debit and credits but income statement is a statement which does not have any debit and credits.

by: scsc


by: mortins

Well if you ask me a lot of people did have a lot of confusion regarding both these and I am sure from what I have read from here most people who have understood the difference by now like me too.

by: Anushan

Income Statement is prepared for a business and an Income and Expenditure account is prepared for a not-for-profit making organisations ;-)

by: Anonymous

хуйня все ребятки

Difference between income/expenditure and trading profit/loss account
by: Anonymous

Income come from members of the association while income come from the profit generated in trading account

income and profit and losss account
by: Anonymous

they both are same

P & L Vs Income statement
by: Anonymous

I think income statement is the form that is used for non profitable organizations like charities and organizations where the income is not coming from sales or revenue or any commercial or trading activity.

While profit and loss is used for trading economical organizations where profit is the target.

good but improve
by: bilal hasnain

very good definitaion but must include the picture of both accounts, if picture cant shown in this site then minimum heads of accounts should entered.

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