Importance of Final Accounts in Business
Final accounts provide a crucial overview of a business's financial performance and position at the end of the accounting period. They include the Trading Account, Profit and Loss Account, and Balance Sheet, which collectively help in assessing profitability, financial health, obtaining loans, tax assessment, and aiding management decisions. Understanding final accounts is essential for stakeholders to make informed decisions and conduct comparative studies.
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Presentation Transcript
MEANING Final accountsgives an idea about the profitability and financial position of a business to its management, owners, the public and other interested parties. Financial statements which are prepared at the end of the year to know about the financial position of the business are called final accounts
PARTS OF FINAL ACOOUNTS Trading Account Profit and Loss Account Balance Sheet
NEED AND IMPORTANCE OF FINAL ACCOUNTS To Know the Result of the Business To Know the Financial Position of the Business To get Loans from Financial Institutions To Assess Income Tax To Assist Management of Business To Conduct Comparative Study
TRADING ACCOUNT Tell about Gross Profit or Gross Losses Debit Side Shows all the - Direct Expenses (Direct expenses are specific costs directly linked to making a specific product or providing a specific service. For example, the flour and sugar a bakery uses to make cakes are direct expenses.) - Opening Stock - Purchases Credit Side Shows Sales Closing Stock
PROFIT AND LOSS ACCOUNT Tells About Net Profit and Net Losses Debit Side Shows All Indirect Expenses (includes all Administrative, Selling and Distribution Expenses like salaries, rent and taxes, postage, and stationery, insurance, depreciation, interest paid, office lighting, advertising, packing, carriage outwards, etc.) - Losses Credit Side Shows - All Indirect Incomes (Indirect incomes are income that comes from non-business activities, such as: Selling old newspapers, Selling cardboard boxes, Selling fixed assets, and Selling old bottles.) - Gains
IMPORTANCE OF PROFIT AND LOSS ACCOUNT Tells Net Profitability Comparative Study of Profit and Loss Control on Unnecessary Expenses Helpful in Preparing Balance Sheet
BALANCE SHEET It is a Statement to Know about Financial Position of a Business on a Certain Fixed date.
NEED AND IMPORTANCE OF BALANCE SHEET Tells about Financial Position of a Firm. Tells about the Liquidity Position of a Firm. Tells about the Balance of Debtors and Creditors. Tells about the Liabilities and Assets of the Firm. Tells Economically Capability of a Firm. Opening Entry on the Basis of Balance Sheet.
SIMILARITIES BETWEEN TRIAL BALANCE AND BALANCE SHEET Both are Statements. To and By not Used. Prepared from the Balances of Ledger. Prepared on a Specific Date. Balance of Cash Book Written in Both.
DIFFERENCE BETWEEN TRIAL BALANCE AND BALANCE SHEET TRIAL BALANCE BALANCE SHEET Shows Financial position Liability and Assets side Only Real and Personal account After Tr.& P.&L. Account Compulsory As a Proof Adjustments considered Checks Arithmetical Accuracy Debit and Credit Sides All accounts written Prepared before T.&P.&L. Account Not Compulsory Not as a Proof No Adjustments
ADJUSTMENTS If any transaction omits If wrongly entered in other account If amount is wrongly entered If any transaction wrongly entered in wrong side account.
NEED AND IMPORTANCE OF ADJUSTMENTS To Find Out Correct Profit and Loss and Financial Position. To Rectify the Error. Complete the Incomplete Transactions To Record the Transactions To Record the Current Incomes and Expenses
