SSC
DEEPAK GUPTA
9213975057
Accountancy
Notes
For Class – XI
Financial Statements

Different between Trading Account & Profit and Loss Account.
Points of Difference
Trading Account
Profit and Loss Account
1. Relation
It is a part of Profit and Loss It is the Principal Account
Account
and Trading Account is its
part.
2. Nature
It shows gross profit or gross
loss.
It shows net profit or net
loss.
3. Transfer of
Balance
Its balance is transferred to
Profit and Loss Account.
Its balance is transferred to
Capital Account
4. Items
In it, purchases, sales, stock,
goods and direct expenses
are shown. It records direct
incomes and direct
expenditures.
In it, office expenses, selling
and distribution expenses,
financial expenses etc. are
shown. It records indirect
incomes and expenses.

Distinction between Profit and Loss Account and Balance Sheet
Points of Distinction
Profit and Loss Account
Balance Sheet
1. Nature
It is an Account.
It is a statement.
2. Purpose
Its purpose is to show the net Its purpose is to show the
profit of the business.
financial position.
3. Period
It is prepared for a particular It is prepared on a particular
period.
day.
4. Coverage
It includes only revenue
receipts and revenue
expenses.
In includes assets &
liabilities.
5. Columns
The left hand side is debit
and right hand side is credit
side.
The left hand side is
liabilities & right hand side
is assets side.
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
Distinction between Trial Balance and Balance Sheet.
Types of Difference
Balance Sheet
Trial Balance
1. Purpose
The purpose is to portray the The purpose is the establish
financial position.
arithmetical accuracy of the
books of account.
2. Information
It is possible to gain this
It is not possible to do so
about profit
information from the
from the Trial Balance.
Balance Sheet.
3. Necessity
It is essential to prepare a
Balance Sheet, to complete
the accounting proceses.
Through desirable it may be
possible to dispense with its
preparation.
4. Headings
The two sides are headed as
assets and liabilities.
The two columns are headed
as debit and credit.
5. Coverage
Only personal & real
accounts appear in the
Balance Sheet.
This account appears in the
Balance Sheet.
In the Trial Balance All
accounts must be written; no
account can be left out.
Normally a closing stock does
not figure in the Trial
Balance.
They are prepared normally
every month and whenever
Desired.
6. Closing Stock
7. Period
Normally it is prepared only
at the end of the trading
period.
8. Adjustment
A Balance Sheet cannot be
prepared without making
adjustment for outstanding
the prepaid items & without
taking into account all
events and transactions for
the year.
A Trial Balance can be
prepared at any stage,
without even making
adjustments.
 Explain the meaning of Grouping and Marshalling in the context of Balance Sheet.
 Balance sheet is a statement and not an account. Balance Sheet is prepared from real and
personal accounts. The real & personal accounts in the Balance Sheet be arranged in such a
manner that anyone regarding them can immediately get a true and fair view of the
financial position of business. This is intended to be achieved by Grouping and
Marshalling.
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 Grouping means putting together items of a similar nature under a common
heading. For example, under the heading of Sundry Creditors, the balances of the
ledger accounts of all the creditors will be shown.
 Marshalling refers to the order in which the various liabilities and assets are
arranged in the Balance Sheet.
(a) In order of liquidity, and
(b) In order of permanence.
a. Order of Liquidity :- In this basis, assets are arranged in the order in which
they can be converted into cash. Hence, cash in hand will appear at the top and
the goodwill at the end.
b. Order of Permanence :- This order is just reverse to liquidity order. In this
basis, assets which is most permanent or which is most difficult to realise will
be at the top and the most liquid asset at the end.

Contingent Liability :- A contingent liability is a liability which comes into existence on
the happening of an uncertain event. For example, liability on account of bill discounted with
bank, uncalled liability in investments in other companies etc.

Prepaid Expenses :- Prepaid expenses are the expenses which are paid in advance or paid
for the future period which is not yet over or not yet expired. Generally insurance, telephone
rent etc. are paid in advance. Prepaid expenses are shown by way of deduction from the
expenses and in the asset side of Balance Sheet.

Adjustment Entry :- To ensure that the Final Accounts disclose the true trading results, it
is necessary to take all adjustment into consideration by passing adjustment entries at the
end of the accounting period. Adjustment entries affect both the financial statements.
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