Final Accounts Meaning | Objectives of Final Accounts

              In this article let us know the objectives behind preparing the final accounts. But before that let know what are final accounts?

Final Accounts

              Final Accounts are the statements prepared at the end of the year in order to certain the financial performance of the business or firm. The financial statements are prepared by closing the accounts of the year which include expenses, incomes, investments, asset and liabilities valuation, cash in hand and cash at bank and also taxes to be paid. Preparation of final accounts include preparation of Trading Account, Profit and Loss Account and Balance Sheet. All the three statements are prepared for different reason and to fulfill different requirements.
                  Now lets see objectives of final accounts, what does each mean and what does each one represents and how it is prepared.

Objectives of Final Accounts

              The two most important objectives for which  accounting is adopted by every business are

§  Ascertainment of Profit or Loss during a given trading period.

§  Ascertainment of financial position of his business as on given date.

           There are various stages involved in preparing final accounts. They are,

§  Trading Account

§  Profit and Loss Account

§  Balance Sheet

Now let us understand them in detail

§  Trading Account:

It is the account which shows the results with respect to the trading i.e. buying and selling of goods called gross profits and loss. The debit side of the trading account represents opening stock, purchases and other direct expenses and gross profit while the credit side represents sales, closing stock and gross loss. Below is the format representing the format for preparing the trading account.

Trading A/c for the year ended............................

Particular	Amount	Particular	Amount
To, Opening Stock To Purchases               xxx  (-)Purchase Return     xxx To Direct expenses To Carriage To Cartage To Freight To Import duties To dock dues To excess duty To wages, power and other manufacturing expenses To Profit and Loss A/c (Gross Profit)	XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX	By Sales               xxx (-)Sales Return     xxx By Closing Stock By Profit and Loss A/c (Gross Loss)	XXX XXX XXX
TOTAL	XXX	TOTAL	XXX

§  Profit And Loss Account:

The main objective of this A/c is to reveal the net profit or net loss that has occurred in a business over a period of time. The gross profit and loss which is shown is transferred to the P&L A/c. On the debit side all the administrative expenses, maintenance expense, financial expenses, selling and distribution expense, provisions and losses are listed out below the gross transferred from trading A/c and on credit side all the non trading incomes are listed below gross profit which is transferred from trading A/c. The format for preparing the Profit and Loss A/c is as shown below

Profit and Loss A/c for the Year Ended...................

Particular	Amount	Particular	Amount
To trading A/c (Gross Loss from Trading A/c) Administrative Expenses To Salary To Office Rent To Printing and Stationary To Postage & Telegram To Trade Expense To Audit Expense To Legal Charges To Tax To Insurance To Telephone expense To operating Expense Maintenance Expense To repair and renewals of assets To depreciation of assets Financial Expenses To Interest on Loan To Discount Allowed To Interest on Capital To Bad debts To Discount to bills To Bank Expenses To Charities and Donations Selling and Distribution To Carriage Outwards To Advertisement Expenses To Export Duty To Commission to Sale agents To Salaries To Insurance on goods sold To Packing Expense To Sales Tax To Rent of Insurance of Warehouse To delivery Van Expense Provisions To Provisions for doubtful debts To Provision for Discount debtors To Provision for other expenses Loss To loss on sale of asset To loss by fire To Capital A/c (By Net Profit transferred to capital A/c)	XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX	By Trading A/c (Gross Profit) Non-Trading Incomes By rent received By Interest Received By Commission Received By Discount Received By Income from Investment By Interest on Drawings By Bad debts received By Profit on sale of asset By Refund of tax By Bad debts recovered By Appreciation By Capital A/c (Net Loss transferred to Capital A/c)	XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX
TOTAL	XXX	TOTAL	XXX

§  Balance Sheet:

A statement of the assets, liabilities and capital of a business or a firm or an organization at a particular point of time in detailing the balance of income and expenditure over the preceding period. It says about the financial position of a business, firms or an organization by providing details regarding assets, liabilities and capital of business. The format for Balance Sheet is as shown below

Balance Sheet for the Year Ended

Liabilities	Amount	Assets	Amount
Net Profit for the Period Further Capital Introduced  Interest on Capital (-)Drawings Interest on Drawings Net Loss for the Period Loans Long term borrowings Sundry Creditors Bills/Notes Payable O/s Expenses Incomes Received In advance Etc	XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX	Fixed Assets Land &Building Plant &Machinery Equipment Furniture &Fixtures Investments Current Assets Sundry Debtors Closing Stock Bills/ Notes Receivables Prepaid Expenses O/s Incomes Cash in Hand Cash at Bank Etc	XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX XXX
TOTAL	XXX	TOTAL	XXX

                 I hope you have understood the final accounts and also now that you can prepare the final accounts.