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 < Stock
Operating expenses > Cash
Operating expenses < Prepaid expenses
Operating expenses > Creditors
Operating expenses > Accrued expenses payable
Depreciation expense < Fixed assets
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