Description

A balance sheet provides both investors and creditors with a snapshot as to how effectively a company’s management uses its resources. A profit and loss (P&L) statement summarizes the revenues, costs and expenses incurred during a specific period of time.

A retained loss is a loss incurred by a business, which is recorded within the retained earnings account in the equity section of its balance sheet. The retained earnings account contains both the gains earned and losses incurred by a business, so it nets together the two balances.

Debit balance in the profit and loss account shows the Net loss because,in such a situation, expenses are more than revenue. Whereas, the Credit balance in the profit and loss account shows the Net Profit because,in such a situation, revenue is more than expenses.

At the end of each accounting period, the value of losses is transferred to the income account. Similar to expenses, losses decrease the value of the income account as opposed to revenues and gains that increase the income account.