Inter-relationship between P & L A/c and BS

The two statements between themselves take into record the total expenditure incurred. An appropriate part of the total amount spent is entered in the P & L A/c as expense or cost and the remaining is entered in the BS and (carried forward) as assets. 

• Stock in hand (taken into the next year) (being goods unsold) is an example of BS entry in this situation; the balance of the goods purchased during the year and sold (at profit or loss) will be in the P & L A/c as costs incurred for making the sale. 
• In respect of wages, salaries, rent, power, etc., these will mostly be incorporated in the P & L A/c except if any part relates, or is repeatable, to the next year, like if service can continue to be obtained in the next year without additional payment. 
• In respect of machinery, depreciation will be in the P & L A/c and unappreciated balance will go into the BS. 

It must be recalled here that the owner's  equity is affected by profit or loss. For this reason, the P & L A/c too, in a way, has implicit information on the changes in the financial position from one period  to the next - though information on financial position on a date rightly belongs to, and resides in, the BS. 

For these reasons, the P & L A/c and the BS always go together and should also be read together.