Final accounts are prepared to achieve

Final accounts are prepared to achieve the objectives of accountancy. In order to know the profit or loss earned by a firm, Income statement or trading and profit and loss account is prepared. Balance sheet or position statement will portray the financial condition of the firm on a particular date. These two statement, i.e. Trading and Profit and Loss account and balance sheet are prepared to give the final results of the business that is why both these are collectively called as final accounts. Thus final accounts include the preparation of:

•  Trading and Profit and Loss Account
• Balance Sheet

Final accounts are the means of conveying to management, owners and interested outsiders a concise picture of profitability and financial position of the business. The preparation of the final accounts is not the first step in the accounting process but they are the end products of the accounting process which give concise accounting information of the accounting period after the accounting period is over. These accounts summaries all the accounting information recorded in the subsidiary books and the ledger running into hundreds or thousands of pages

Trading and Profit and Loss Accounts:

This account is made up of two accounts i.e. Trading account and Profit and Loss account. Trading concerns i.e. those concerns which purchase goods from one market and sell these in another market at a profit, prepare this accounts This accounts is prepare to know the trading results or gross margin on trading of the business, i.e how much gross profit the business has earned from buying and selling during a particular period. The difference between the sales and cost of goods sold is gross profit. For the purpose of calculating cost of goods sold, we take into consideration opening stock, purchases, direct expenses on purchasing or manufacturing the goods and closing stock. The balance of this account represents gross profit or gross loss and is transferred to the profit and loss account. On the other hand Profit and Loss account is prepared to calculate the net profit of the business. There are certain items of incomes and expenses of the business which must be taken into consideration for calculating net profit of the business. These are indirect nature, i.e. concerning the whole business and relating to various activities which are done by the business for the purpose of making the goods available to the consumers. Indirect expenses may be selling and distribution expenses, management expenses, financial expenses etc. The nature of this account is nominal account and balance of this account is transferred to the Balance sheet’s Capital Account as the whole profit or loss will be that of the owner and it will increase or decrease his capital.