The simpler of these two financial reports is the Income Statement, or Profit and Loss Report. The P & L lists only the income and expense accounts, and their balances. The income statement then calculates the difference to arrive at Net Income Before Taxes. A company can run a standard or detailed Profit and Loss Report any time during the fiscal year to determine its profitability. Net income before taxes is also referred to as earnings or profit.
Income and expense accounts are yearly or temporary accounts. At the end of each fiscal year, the accounts must be "zeroed out" ... their balances reset to zero. Then their sum - net income - is applied to Retained Earnings (Owner's Equity). Most Accounting programs perform these tasks automatically.