Profit and Loss (P&L) accounts, also known as nominal or temporary accounts, are used to record revenues and expenses for a specific accounting period. A fundamental principle of accounting requires that at the end of each fiscal year, the balances of all P&L accounts are transferred to a balance sheet equity account, typically "Retained Earnings." This process, known as period-end closing, effectively resets or clears the P&L account balances to zero, preparing them to accumulate data for the new fiscal year.

A. Balance sheet accounts (Assets, Liabilities, Equity) have their balances carried forward to the next fiscal year; this is the defining characteristic of a permanent account, not a P&L account.

B. A cash account is a specific type of balance sheet account used for recording cash transactions. P&L accounts, such as 'Sales Revenue' or 'Rent Expense', are not cash accounts.

D. In the standard SAP Business One chart of accounts, the first three drawers are reserved for balance sheet accounts (Assets, Liabilities, and Equity). P&L accounts are located in subsequent drawers.

1. SAP Business One 10.0 Help Portal

"Period-End Closing": "The period-end closing utility transfers the balances of all P&L accounts to a balance sheet account that you define

for example

a retained earnings account. As a result

all P&L accounts have a zero balance at the beginning of the new posting period." (This directly supports answer C and refutes A).

2. SAP Business One 10.0 Help Portal

"Chart of Accounts Window": "The chart of accounts is structured like a chest of drawers... The first three drawers contain the G/L accounts for assets

liabilities

and equity... The other five drawers contain the G/L accounts for revenues

cost of sales

expenses

financing

and other revenues and expenses (or non-operating income and expenditure)." (This directly refutes answer D).

3. SAP Press

Financial Accounting with SAP S/4HANA (While for S/4HANA

the core accounting principle is identical and universally applicable to SAP ERP systems including Business One): "At the end of the fiscal year

the balances of the P&L statement accounts are set to zero... The net profit or loss for the year is calculated from the balances of the P&L statement accounts. This net profit or loss is then posted to an equity account (retained earnings)." (Chapter 3

Section 3.2.2

G/L Accounts). This confirms the fundamental accounting principle behind answer C.