Final Account

Final Accounts:

Learning Objectives:

1. What is trading and profit and loss account?
2. What is the the difference between trial balance and balance sheet?
3. Prepare trading and profit and loss account and balance sheet.

Having proved the arithmetical accuracy of ledger by means of trial balance we should proceed to ascertain our profit or loss for a period, in order to determine the profit or loss of a business and its financial position, final accounts at the end of a particular period are prepared. The term "final accounts" means statements which are finally prepared to show the profit earned or loss suffered by the firm and financial state of affairs of the firm at the end of the period concerned. In order to know the profit or loss earned by a firm, income statement or trading and profit and loss account is prepared. This statement is also called "statement of operations." While the financial position is judged by means of preparing a balance sheet of the business. This statement is also called "position statement" or "statement of financial condition". In this section of the website we shall study the method of preparing these two statements.

The basis of these statements is trial balance. The trial balance includes all the accounts from the ledger. the nature of which may be either, personal, real, or nominal. It should be noted that from the trial balance only nominal accounts are transferred to the profit and loss account. The real or personal accounts go to the balance sheet.