Understanding accounting: profit and loss statement (P&L)

Next to the balance sheet the income statement is an important report within a company's annual financial statements. In this report, income and expenses are shown side by side. If the income side is higher, your company is in the profit zone. If it is the other way round, your company is making losses.

The profit and loss account is mandatory

Whoever is considered a merchant by law and is subject to the obligation to Accounting is subject to, must prepare a profit and loss account (P&L). This includes individual entrepreneurs, partnerships and corporations. Small traders and non-merchants are also obliged to create a profit and loss statement as soon as they make a profit of more than EUR 50,000.00 or a turnover of more than EUR 500,000.00.

Sole proprietors and partnerships are subject to relaxed structuring regulations.

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The form of the income statement

As a rule, the income statement is prepared for the previous financial year or for a period of at least twelve months. If you wish to deviate from this rule, you must justify this. The income statement is part of the balance sheet.

In Germany, the income statement is usually presented in account form or scale form. Once the form of presentation has been selected, it must be maintained in subsequent years. This is necessary in order to ensure that the figures can be compared.

If the account form is used, the P&L is used as the closing account. Expenses are posted to the debit side. Income is posted to the credit side. If the scale form is used, the previous year's turnover is used as a basis. Expenses are deducted from this in sequence. The income is added. It is fundamental that only expenses and income from the same financial year are used. The classification rules for sole traders and partnerships are handled somewhat more loosely.

The P&L in SAP Business One

That SAP Business One finance provides templates for the profit and loss account. You can define which period you want to look at: per month, per year or per period. The calculation can be carried out according to different dates: Due date, posting date or document date. The level of detail can be selected, as well as an additional foreign currency.

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