To calculate the financial position of a particular organization and to get them accounts at the end of a fiscal year is known as final accounts. A journal is recorded and prepared regularly and transferred to a ledger to get final accounts prepared.
It helps to keep a track of the management and the financial position final account includes four major components which can be listed below as trading account manufacturing account profit and loss account balance sheet.
Final accounts are an essential financial component of any accounting year for every company. Simply put, it is the full and final accounting procedure which is carried out at the end of an accounting year, resulting in the preparation of relevant accounts. It derives reference from the final trial balance, which is itself a reference to the ending balance in every ledger account. The final accounts for all companies must be produced on or by the 31st of March every year as it marks the end of a financial year.
The final account of every company comprises the journal entries necessary to complete the accounting books for that specific financial year. Thus, some of the components of any entity’s final accounts are the following:
The final account balance depends on the final trial balance and the financial statements of each year. The importance of final accounts lies in the fact that they help a company analyse its annual financial standing.
Most companies and corporations across the world use primarily 3 types of final accounts:
Examples of Final Accounts
The compilation of final accounts must be done at the end of the financial year by book-keepers of an entity. They are subject to audits by either external or internal auditors, who are mostly Chartered Accountants.
It is of utmost importance that the accounts are drawn up in a fair and transparent manner.
For a particular accounting period, the gross profit or gross loss which are obtained by the sale and purchase represents the trading account. This also reflects an overall record of all the activities done by the firm.
This is often the first final account to be tabulated. This account is used to determine the gross profit or the gross loss that is incurred by a corporation at the end of a financial year. On the left-hand side (LHS), all debited sums, including direct purchases, opening stock and direct expenses, are recorded.
A company will have a gross profit scenario when the credit side (RHS or right-hand side) is greater than the value represented on the LHS. The gross profit is later transferred to the credit side of a profit and loss account, which is drawn up after the completion of a trading account.
A company will have a gross loss scenario when the debit side is greater than the credit side or when LHS > RHS. Should there be a gross loss incurred, it will then be transmitted to the debit side of the P & L account.
Here is a Sample Trading Account
