In the previous chapters, we have learned that all the transactions of a business are in the first instance recorded in the books of the original entry. Then we post these transactions into ledgers, and after proving the arithmetical accuracy of ledgers by means of a trial balance. We proceed to ascertain the profit and loss for a certain period. The accounts, which are prepared to ascertain the profit or loss and the financial position of the business at the end of the particular period, are known as the “Final Accounts” of the business.
Final ‘Accounts are those accounts which are finally prepared only once at the end of the particular period. These Accounts are trading and profit and loss AcCount and Balance Sheet. The objects of preparing these accounts are:-
1 To ascertain the result of transactions i.e. in order to determine the profit and loss
of the business; and
2. To present the financial position of the business:
Result of transaction is ascertained with the help of trading and profit and loss
account or Income Statement while financial position of the business is shown with the help of the balance sheet. A particular period at the end of which final accounts are prepared is called accounting period. The basis of these accounts and statements is trial balance. The trial balance includes all the accounts appearing in the ledgers. Those accounts may be personal, real and nominal. From the trial balance only nominal accounts are transferred to the trading and profit and loss accounts and the personal and real accounts are shown in the Balance Sheet. The profit and loss account.of a business concern is generally divided into two sections.
- 1. The Trading Account or Cost of Goods Sold
- 2. The Profit and Loss Account or Income Statement
Similar Accounting Articles:
- BALANCE SHEET
- SOME TYPICAL PROBLEMS IN FINAL ACCOUNT
- ADJUSTMENTS OF ERRORS IN FINAL ACCOUNTS
- GROSS PROFIT OR GROSS LOSS
- PROVISION FOR DOUBTFUL DEBTS