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Connections between Profit & Loss Statement and Balance Sheet Accounts

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Understanding Business Accounting For Dummies - UK, 4th UK Edition
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We make remembering accounting rules and connections easy. The following list shows the connections between the Profit & Loss Statement and the balance sheet accounts.

Sales revenue > Cash and Debtors

Cost of goods sold expense

Operating expenses > Cash

Operating expenses

Operating expenses > Creditors

Operating expenses > Accrued expenses payable

Depreciation expense

Interest expense > Accrued expenses payable

Income tax expense > Accrued expenses payable

When you’re doing your accounts, you need to do things in a certain order. Keep track of the bookkeeping cycle with the following useful flow chart:

Transactions (and certain other events) > Original Entries in Journals > Postings in Nominal (General) Ledger Chart of Accounts > End-of-Period Adjusting Entries > Preparation of Financial Statements, Tax Returns and Internal Accounting Reports > Closing Entries at End of Year

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