If a company has a negative balance from a preceding year (i.e., a net operating loss), should the current year earnings & profits include an offset to bring that negative balance back to 0 or positive? For example, if the company from 2018 had a balance/loss of -$2000, and in 2019 the company had E&P of $5000, should that $5000 be offset to $3000 to cover the negative balance from 2018? Thanks
Preceding year negative balance and current year E&P
Answers
Each P&L (E&P) statement should be independent of the other. Therefore, your 2018 P&L should be completely separate from your 2019 P&L. This way you have comparable financial statements YoY, and you can maintain compliance with GAAP.
For tax purposes, you will likely be able to carry forward those net operating losses, but those will be dealt with on the tax side. And its important from the tax perspective that you keep the losses in 2018, so that you know to offset those against pperating income in 2019.
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Accounting