Page 128 - Account 10

1. Introduction
Every business is motivated by profit. Thus, a businessman wants to determine the
profit or loss of his business after a certain period and its financial position on that date.
He/ she needs the complete monetary figures of the incomes, gains and expenses and
losses of his business concern of a certain period, say a year, in order to determine the
profit or loss for the period. Similarly, she/he needs the actual monetary values of the
capital, liabilities and assets of her/his concern on that date to find out its true financial
position.
These all pieces of information are obtained from the ledger balances of certain specified
period, usually of a year, because ledger accounts are prepared on separate heads of
incomes, gains, expenses, losses, capital, liabilities and assets. After preparing the ledgers
and getting their balances (Dr. or Cr. balances), they are to be tested by preparing a
trial balance to check their arithmetical accuracy. Then, when the ledger accounts are
found accurate, the final accounts are prepared from the information of trial balance. The
final accounts, comprised of trading and profit and loss and balance sheet, are basically
intended to ascertain the profit or loss at the end of a fiscal year and the true financial
position on that date.
Thus, final accounts may be defined as the books of account of a business concern,
prepared at the end of a fiscal year to ascertain the result of its operation i.e. profit/loss
for the period and its true financial position on that date.
According to S. Mukharjee, “Final account is the account which is prepared at the end of a
given year period to see the profit and loss position as well as the financial position of a going
concern for the period given.”
In conclusion, it is the final process of accounting for preparing financial statements,
i.e. trading A/c, profit and loss A/c and balance sheet to show the operating result and
financial position of the firm.

Key Point Final accounts are the accounts prepared at the end of a given period of
time to ascertain profit or loss and financial position of the business.

2. Objectives/Importance of Final Accounts
i. To know the profit/loss of the business.
ii. To know the position of capital, liabilities and assets.
in. To find out the liquidity and solvency position of business.
iv. To control over the unnecessary financial transactions which are essential for
the business.
v. To predict the future performance of the business.
vi. To communicate the financial transactions in summary.

128 Aakar’s Office Practice and Accountancy - 10 Final Accounts 129