Definition and Explanation of Final
Accounts:
Every
businessman goes into a business with the idea of
making profit, which is the reward of this effort.
He tries his best to get more and more profit at the
smallest economic cost.
The
role of accounting is to accumulate accounting data
in such a manner that the amount of profit made or
loss sustained during a particular period
ascertained. The "final accounts" enable us to check
on the conduct of the business, and to discover
whether it is being run profitably. They are the
means of conveying to the owner/owners, management,
creditors, and interested outsiders a concise
picture of profitability and financial position of
the business.
The
preparation of the final accounts is not the
first stage of an accounting cycle but they are the
final products of the accounting cycle, that is why,
they are called final accounts.
These
accounts summaries all the accounting information
recorded in the original books of entry and the
ledger
consisted of hundreds of thousands of pages.
The
final accounts or financial statements consists of:
-
Trading and profit and loss account or income
statement, which is prepared to know the profit
earned or loss suffered by the business during a
specific period.
-
Balance sheet, which is prepared to know the
financial position of the business on a particular
date.
These two
items or statements are collectively known as "final
accounts or financial statements"
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