What is an income statement used for?
Profit and Loss Account (P&L)
Income statement, track record, income statement, income statement, sales statement, expense and income statement; 1. Construction: The profit and loss account (P&L) is to be structured clearly and transparently in order to ensure an insight into the profit situation of the company. Offsetting expenses and income is therefore generally not permitted (offsetting prohibition).
2. Representation form: The income statement (P&L) can be in Account- or Graduated form be set up. Due to the greater clarity, the graduated form is mandatory for corporations (§ 275 I HGB). You can use either the total cost method or the cost of sales method (see figure “Income statement according to the total cost and cost of sales method”). Once selected, the form of presentation is to be retained, as is the item description and item sequence, insofar as they are freely selectable for sole proprietorships and partnerships (principle of formal balance sheet continuity or consistency), so that the comparability of the profit and loss accounts (P&L) is guaranteed.
3. Main regulations of the HGB on the income statement (P&L): In accordance with Section 276 HGB, small and medium-sized corporations are granted relief for the preparation of the income statement (P&L). In Section 277 of the German Commercial Code (HGB), regulations on individual items are explained in more detail, e.g. sales, changes in inventory, unscheduled depreciation and extraordinary income or extraordinary expenses.
Even if sole traders and partnerships are not bound by these structuring regulations (accounting), these regulations still serve as a benchmark. Often reference is made to these provisions in articles of association.
4. Meaningfulness: The fact that the item annual surplus / annual deficit can be separated into the components "Result from ordinary business activity" (consisting of the operating and financial result), extraordinary result, and income and other taxes (which cannot be allocated to the individual results) means that a source analysis is possible, but The profit and loss account (P&L) does not offer a clear breakdown of profit in the business sense, as a consistent separation of expenses and income into operational and external, one-off and regular period-specific and non-periodic ones is not required.
See also balance sheet analysis.
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