Money
Statements and the year end
A profit and loss, a balance sheet that balances, and the one piece of accounting here that is not derived.
Both statements are presentations of the ledger, never a second source of truth. Every figure is a sum of journal lines that already exist, computed on every read — nothing is stored, so a statement cannot drift from the books it describes. The moment a total is kept somewhere it becomes something that has to be recomputed, and then there are two answers to what the profit was.
Both come from one pass over one set of lines
So the profit at the foot of the first is by construction the figure that makes the second balance. Two queries seconds apart is how a balance sheet comes to be out by a payment somebody recorded in between.
A period and a moment
| Profit and loss | Balance sheet | |
|---|---|---|
| Is | A period | A moment |
| Reads | Movements inside the period | Everything ever posted |
| Answers | What did we earn and spend | What do we own and owe |
That is why the two take different inputs. Computing a balance sheet from period movements alone is the commonest way to produce one that does not balance, and the difference is always exactly the opening position.
How things are grouped
By account type, which is not a matter of opinion. Whether depreciation sits inside cost of sales, whether a director's loan is current — those are arguments about somebody's business rather than about arithmetic, and a product that took a side would be wrong for half its readers. A shallow, conventional grouping is the honest answer.
- Each balance is signed the way an accountant expects. Reporting everything as debits-less-credits is arithmetically defensible and shows every income account negative, which reads as a business that lost money all year.
- An account with no postings never appears, and one that nets to zero is dropped. A chart has accounts nobody has used yet, and a statement padded with rows of nothing is one nobody reads to the bottom.
The result sits on the balance sheet as its own line
Not folded into equity. Until a year end closes it into retained earnings that is exactly what it is: a result nobody has appropriated. Folding it in silently would make the equity figure disagree with the equity accounts with nothing to say why. It is the cumulative result, because a balance sheet is a position.
Whether the books balance is reported rather than assumed. The database makes an unbalanced entry impossible, so it should never be false — and if it ever is, a statement quietly showing a wrong figure would be far worse than one saying the books do not add up.
Closing a year
Without it, income and expense accounts carry their balances forward for ever and year two's profit and loss silently includes year one.
Closing produces an ordinary journal entry — one line per account with a balance, one to retained earnings — so it appears on the journal, reverses like anything else, and posts through the same constraints. There is deliberately no *closed year* flag: the entry is the record, and a flag would be a second place the answer lives that a reversal would not notice.
Dated the last day of the year, which decides the order
The first of the next would put the previous year's result into the following year's profit and loss — precisely the figure closing exists to remove. So the entry has to land in December, so December cannot already be closed when it is posted. Every month but the last must be closed first, then the entry posts, then December is closed as the final act.
Closing one year moves that year's result and nothing else. Earlier years nobody closed stay where they are until somebody closes them too.