Connections between Profit & Loss Statement and Balance Sheet Accounts

Part of Accounting Workbook For Dummies Cheat Sheet (UK Edition)

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