After the Profit and Loss account is prepared the only balances left will be itself and the assets, liabilities, and capital accounts. A statement is then drawn up of these remaining balances. This statement is aptly named a Balance Sheet and arranged in terms of asset balances or capital and liability balances. In contrast to the preparation of the Profit and Loss account the Balance Sheet is not part of the double entry system, and no further entry is made in these accounts. The term “account” means that it is part of the double entry system thus anything that is not an account is outside of this system. The presentation of the Balance Sheet therefore does not have to comply with the left-hand right-hand side concepts and is one of tradition or preference. In Great Britain there was a tradition of showing the assets on the right-hand side of the balance sheet and the capital and liabilities on the left-hand side i.e. the complete opposite to the double entry convention.

At a year end the final balance on the profit and loss account may be transferred to another Retained Earnings account such that the Profit and Loss account therefore represents the profit or loss for the year. The Balance Sheet is always as at the date the trial balance is extracted.