Final answer:
Capital transactions are not reported through the statement of profit or loss but on other financial statements such as the statement of changes in equity, statement of financial position, or the statement of cash flows.
Step-by-step explanation:
Capital transactions, such as raising additional funds from the owner(s) of a business or raising and repaying loans, do not get reported through the statement of profit or loss. Instead, these activities are recorded in the statement of changes in equity and the statement of financial position for contributions from owners, and on the statement of cash flows or notes for details regarding loans and financing activities. Capital transactions, such as raising additional funds from the owner(s) of the business or raising and repaying loans, are not reported through the statement of profit or loss. The statement of profit or loss, also known as the income statement, focuses on the revenues and expenses of a business during a specific period of time. Capital transactions are recorded in the statement of financial position, also known as the balance sheet, which provides a snapshot of a company's financial position at a specific point in time.
When firms seek financial capital, they may do so by reinvesting their own profits, borrowing from banks or through bonds, obtaining funds from early-stage investors, or selling stock. The selection of a financial capital source has implications on how the firm is financed and how it must repay its obligations.