Income statement accounts

What it means

Income statement accounts are the accounts of account classes 5 and 6, in which costs and revenues accumulate during the year. Class 5 covers costs such as materials consumed, services, personnel costs and depreciation, and class 6 covers revenues such as sales, own work capitalised and financial income.

Unlike balance sheet accounts, income statement accounts have no opening balance. They start from zero every year and capture only the costs and revenues of that period. At year-end they are closed to the profit and loss account, and their difference is the profit or loss.

Cost accounts have debit turnovers and revenue accounts credit turnovers. Their balances are used to draw up the profit and loss statement, which shows how the company performed over the year. The result is then carried through the balance sheet into equity.

How it works in practice

Within the account groups of classes 5 and 6, a company sets up sub-accounts to suit its needs, for example by type of service, cost centre or tax deductibility. Keeping non-deductible costs in separate sub-accounts greatly simplifies preparing the tax return.

When the books are closed, the balances of income statement accounts are transferred to the profit and loss account, one of the closing accounts in class 7. The result is then posted to a balance sheet account and distributed the following year according to the general meeting's decision.

Income statement accounts are organised by nature of cost and revenue, matching the structure of the profit and loss statement. If the company also needs classification by function, it adds it through cost centres, jobs or projects assigned to individual entries.

What to watch out for

Allocating costs and revenues to the correct period is crucial for income statement accounts. Costs and revenues relating to future periods must be deferred, otherwise the result is distorted and may lead to incorrect taxation.

Some transactions are easily booked wrongly to income statement accounts instead of balance sheet accounts, such as a capital improvement recorded as a repair or an advance paid recorded as an expense. Such errors affect both the result and the balance sheet and are best caught before closing.