All processes that cause an operationally caused change in equity (positive or negative) are posted to profit and loss accounts. They are divided into income accounts and expense accounts and are themselves sub-accounts of equity or the income statement.
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Definition / explanation
Income accounts (i.e. income accounts and expense accounts) post income and expenses. Income is inflows of value that, in simple terms, increase equity and expenses are losses of value that reduce equity.
Profit and loss accounts are concluded via the profit and loss account upstream of the equity account. The following applies: If the total of all income is greater than the total of all expenses, if the company has made a profit, if it is smaller, correspondingly a loss.
Sum of all income> Sum of all expenses = profit generated
Sum of all income <Sum of all expenses = loss generated
Both results are considered a success in accounting (positive as well as negative), the term itself is value-neutral.
Differentiation from inventory accounts
Unlike inventory accounts, income accounts do not have an opening balance. They start at zero with each fiscal year, as they are used to record value-changing flow variables.
In contrast, value-neutral transactions are recorded on inventory accounts.
example - Purchase of a machine in cash, ie the asset inventory increases by the same amount as the cash inventory decreases (asset swap).
What are expense accounts and income accounts?
Expense accounts - With the help of the expense accounts, those business transactions are recorded that represent a depreciation and consequently reduce equity. Examples of expense accounts are raw material or personnel accounts: The consumption of raw materials and the use of labor cause effort without any other asset increasing.
Income accounts - Business transactions that represent an increase in equity are posted to income accounts. Examples are interest or rental income, which leave the actual credit balance or rental property unchanged in its value (it does not decrease).