What happens to the balance in the Profit and Loss a/c?

Question

What happens to the balance in the Profit and Loss a/c?
The "Profit & Loss a/c" is opened anew every accounting period. The "P & L a/c" relating to a particular accounting period is independent of the "Profit and Loss a/c" of any other accounting period.

Answer 1

The net profit or loss arrived at in your profit and loss statement is closed off to the Retained Earnings a/c in the balance sheet. Assume your RE a/c has an opening balance of $1m and you made a net profit of 200k this year. Your RE a/c will have a closing balance of $1.2m. This is brought forward to be next year's opening bal. to which you will add next yr's net profit and on it goes.

Answer 2

what ever the difference is it is added to owners equity... sometimes this is given to the owners as a bonus, if profit, to maintain the books at a certain level at the end of the year...

Answer 3

profit and loss or income and expense account are being closed every year-end to surplus free or equity account. if in case there is/are entries made affecting previous year income or expense account, this should be charge correspondingly to surplus free or equity account

Answer 4

It is placed on the owners equity.