What is a profit and loss account (P&L account)?
In the context of double-entry bookkeeping, the profit and loss account is an account that shows all expenses on the debit side and all income of the company on the credit side at the end of the financial year. It is also abbreviated to P&L account. The difference between the two sides shows the company's success as a balance, i.e. as the difference between the debit and credit side of the account:
- If the balance is on the debit side of the account, the income is greater than the expenses, ie the company has made a profit.
- A balance on the credit side, on the other hand, indicates a loss. The expenses are then greater than the income.
The success account
Since the Success accounts Represent sub-accounts of the equity account and the P&L account results from the profit and loss accounts, the result of the P&L account must be reflected as a profit in the equity account. The profit or loss of the company is offset against the equity account, on the opposite side compared to the income statement account. This means that the income statement account is also a sub-account of the equity account.
Since the profit immediately increases the company's equity, it is posted to the credit side of the equity account. Any loss is carried over to the debit side.