Final Account

Introduction  to Final Accounts

Final Account gives an idea about profitability and financial position of the company to its stakeholders include management, owners, employees, investors, shareholders, etc.

Final Account is one of the steps of accounting cycle. It is the combination of Trading and Profit and Loss account which is one of the part of Financial Statement. Financial statement includes major four account i.e. Income Statement, Balance Sheet, Cash Flow Statement and Statement of Retained Earnings. Profit and Loss account sometimes also called Income statement. Income Statement could be either in Single step format or Multi-step format. 

Final Account

Trading account basically deals with Direct incomes and Direct expenses accounts where as Profit and Loss account deals with Indirect Incomes and Indirect Accounts. 

Note: Manufacturing account is prepared to determine the manufacturing cost of finished goods. The cost of finished goods then transferred from this account to Trading Account to determine Gross Profit or Loss.

Importance of Final Account

The following are the importance of final account listed as bellows:

  • It assists shareholders to evaluate their investment

  • It is essential for tax purpose or tax department

  • It provides facts & figures related to firm's performance, liquidity position, profitability status and leverage position.

  • It allow lenders or creditors to see the financial health of the organization based on its creditability.

Purposes of Various Account under Final Account

  1. Trading Account: It is prepared to determine Gross Profit or Gross Loss and transferred to profit & loss account.

  2. Profit & Loss Account: It is prepared to determine Net Profit or Net Loss and transferred to profit & loss appropriation account.

  3. Profit & Loss Appropriation Account: It is prepared to determine Retained Earning and transferred to balance sheet.

  4. Balance Sheet: It is prepared to know overall financial position of the company.

Steps for preparing Final Accounts

The following steps to prepare the final accounts are listed as bellows:

1. Prepare Trading Account

2. Prepare Profit and Loss Account

3. Prepare Profit and Loss Appropriation Account

4. Prepare the Balance Sheet

Final account shows the position of the company in terms of various ways like Assets, Liabilities, Capital, Expenses, or Incomes.

Format of Trading Account and Profit & Loss Account

Format of Trading and Profit & Loss Account

Format of Profit and Loss Appropriation Account

Format of Profit & Loss Appropriation Account
Format of Balance Sheet

Balance Sheet

Conclusion

Final Account gives an idea about profitability and financial position of the company to its stakeholders include management, owners, employees, investors, shareholders, etc. Final Account is one of the steps of accounting cycle. It is the combination of Trading and Profit and Loss account which is one of the part of Financial Statement. Trading account basically deals with Direct incomes and Direct expenses accounts where as Profit and Loss account deals with Indirect Incomes and Indirect Accounts. Balance sheet shows the position of the company in terms of various ways like Assets, Liabilities, Capital, Expenses, or Incomes.

Come On, Tell Me What You Think!

Did I miss something?  Come on! Tell me what you think about this post on Final Account in the comments section.

Comments

  1. KaranbirMarch 27, 2020 at 8:43 PM

    I have prepared my personal account. I have followed your worksheet video on Youtube.
    In the trial balance all is balanced till the income statement. My only income is interest from Bank and dividends from shares held b me. My balace sheet has no entries on the capital and liabilities as i have none. How to go ahead. How can I send you my macroe nebled workbook?

    ReplyDelete

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