Page 89 - Office Practice and Accounting 10

6 Final Account

A trial balance makes a definite stage in the preparation of accounts. It indicates
that all the transactions for a particular period have been duly entered, posted and
balanced. But this is not the end of book-keeping work. A firm or businessman wants
to know the profit or loss made by business in a given period and to understand the
financial position of the business in a given date. A firm or businessman can ascertain
these by preparing final accounts, which is prepared on the basis of trial balance.
The final account includes Manufacturing account, Trading account, Profit and loss
account and Balance sheet. Final account is also known as financial statement and
includes two statements namely-income statement (Trading and Profit and loss
account) and statement of financial position (Balance Sheet). Even though Balance
sheet is a statement, for all practical purpose, it is treated as a part of Final Account.

O. P. Gupta, “Final Account consists of trading account, profit and loss account
and balance sheet. Trading Account shows gross profit or loss, net profit or
loss is calculated from profit and loss account and balance sheet is prepared to
know the position of assets and liabilities. ”

Objectives of preparing final accounts
The objectives of final account are as follows:
1. To find out the net profit or net loss by preparing the profit and loss account.
2. To find out the financial position of a business firm by preparing the balance
sheet.
3. To provide the necessary data and information for financial analysis
4. To control financial activities of the business firm
5. To summarize the recorded financial transactions
6. To prepare plans and policy to guide the business ahead
7. To compare the performance internally and externally
8. To help management for right decision making

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