Which types of accounts appear on the profit and loss statement?

• A. Equity accounts only
• B. Asset and liability accounts
• C. Revenue and expense accounts
• D. Cash and inventory accounts

Answer: (C)

Verified step by step guidance

1. Understand the purpose of the profit and loss statement: It is a financial report that summarizes the revenues, expenses, and profits or losses over a specific period of time. It does not include accounts related to the balance sheet, such as assets, liabilities, or equity.
2. Identify the types of accounts that are relevant to the profit and loss statement: Revenue accounts represent income earned by the business, while expense accounts represent costs incurred during the period. These two types of accounts are used to calculate the net profit or loss.
3. Clarify why equity accounts are not included: Equity accounts, such as retained earnings or common stock, are part of the balance sheet and represent ownership interest in the company. They do not directly reflect the operational performance of the business during a specific period.
4. Explain why asset and liability accounts are excluded: Asset accounts (e.g., cash, inventory) and liability accounts (e.g., accounts payable, loans) are part of the balance sheet and represent the financial position of the company at a point in time, not the performance over a period.
5. Conclude that revenue and expense accounts are the correct types of accounts for the profit and loss statement, as they directly measure the company's financial performance during the reporting period.