Profit and Loss Statement – On the first day of the new accounting year several things happen.

1. All income and expense accounts are zeroed out. That way the income and expenses for each year stay in place for that year and the new year starts fresh.
2. Net profit for the year is sent to the account Retained Earnings. Net profit is determined by adding all income and subtracting all expenses.

Balance Sheet – the balance sheet never closes. It shows the state of the company as of the date of the report. At the start of the new year QB takes the net profit from last year and enteres it in the account Retained Earnings. Retained Earnings is an equity account and should be “rolled up” (distributed) to the owner equity accounts.