The profit and loss account – P&L for short – is an accounting overview of all expenses and income of a company in a certain period. The profit and loss account forms the main component of an annual financial statement. This makes it roughly the “big brother” of the revenue surplus account (EÜR) .
So that the income statement complies with the double entry system corresponds, all expenses are booked on the left side in debit and all income on the right side in credit. The result of the balance, i.e. the difference between the two values, is the annual surplus or the annual deficit and thus provides information about the success of the company. In order to prepare the income statement, the company can usually choose between the total cost method and the cost of sales method. Both procedures are described in Section 275 of the German Commercial Code (HGB), whereby the principles of proper bookkeeping (GoB) also contain rules for preparing the income statement.
What is the difference between the income statement and the EÜR?
According to WHICHEVERHEALTH.COM, the business asset adjustment is the calculation of profit on an accrual basis, which is created on the basis of double-entry bookkeeping. This includes the balance sheet, income statement, cash book and inventory. The income and expenses are generally allocated to the year in which they are incurred.
Often the advantage of the income statement is cited that it is easier with the business asset adjustment to shift the payments into other financial years so that an advantageous profit shift can be made.
What is the nature of expense method?
In the total cost method, all sales are booked as income and inventory increases as income. The total income is therefore made up of sales revenues and inventory increases. There are seven yields in total that must be distinguished between:
- Sales
- Increase or decrease in the inventory of work in progress or finished goods
- other activated services
- Other company income
- Income from investments
- Income from other securities
- Other interest and similar income
The expenses are broken down in the income statement according to the total cost method, for example, in material expenses , personal expenses, depreciation, etc. The result here is now the so-called “earnings after taxes”.
Who has to prepare an income statement?
Merchants and partnerships are obliged to carry out a business asset comparison , because according to the HGB they are obliged to keep books and to carry out financial statements. In addition, corporations and cooperatives are also required to keep accounts and for accounting purposes, as are all commercially active natural and other legal persons who fall under the commercial term of the HGB.
But it can also be that a commercial entrepreneur and farmers and foresters are subject to an accounting obligation according to § 141 AO, for example. The accounting obligation arises here when certain profit or turnover limits are exceeded.
Who is allowed to determine the profit or loss through the EÜR?
All freelancers are allowed to determine the profit from the income surplus calculation, regardless of the amount of the tax base. But also smaller BGB companies and small businesses can determine the profit with the EÜR. The prerequisite here, however, is that you do not have to make a profit and loss account as part of a business asset adjustment. For the creation you can use an EÜR template in Excel, in which you simply have to enter your operating income and operating expenses. The profit or loss is automatically calculated based on your information in Excel.
The different options of the income statement
The company’s profit amounts are collected in the income statement and expenses and income are compared. The task of the income statement is to present the sources of the profit for the period after it has been calculated. A distinction is made here between various options for income statements depending on the following criteria:
- After graphic preparation
- Account form
- Graduated form
- According to the possibility of offsetting
- Gross invoice
- Net invoice
- After dealing with the valuation of inventory increases
- Total cost method
- Expense of sales method
The account form
In the case of the account form, the expenses and income are compared if the income side is greater than the income side – this is how an annual deficit is determined. In the opposite case, there is an annual profit
The staggered form
Here, all expenses and income are prescribed discounted, which means that all income and expenses are written off among each other. This discounted form is mandatory in § 275 II HGB and § 275 III HBG.
The netting
When offsetting, a distinction is made between the income statement and the gross and net accounts. In the case of the gross income statement, the expenses and income are generally not netted. Both types of presentation of the income statement in § 275 II HGB and § 275 III HGB proceed according to the gross principle and thus largely prohibit the offsetting of expenses with income. The income statement is differentiated according to the way in which inventory increases are dealt with as follows:
- According to the total cost method (GKV)
- According to the cost of sales method (UCT)
The creation of the income statement
The HGB prescribes in paragraphs 265 and 275 exactly how an income statement must be structured. Even for the bookkeeping of small businesses, it is no longer a challenge to make this breakdown, because every bookkeeping program – even freeware – exactly meets these requirements and automatically specifies the chart of accounts . The income statement has its own account in the chart of accounts and the balances of the individual expense and income accounts are transferred to the income statement as part of the annual financial statements. If all transfer postings have been carried out, the annual financial statements are madeby transferring the balance to the equity balance sheet account. If the financial year was successful, then the equity increased, but if this ended with a loss, then the result was a decrease in the equity.
