Final Accounts Overview

Final Accounts

• Final accounts are prepared by businesses to determine profit or loss and financial position at the end of an accounting period.
• Businesses aim to maximize profit.
• Final accounts involve three main accounts:
  • Trading account: Shows gross profit or loss generated from buying and selling goods.
  • Profit and loss account: Calculates net profit or loss after deducting expenses from gross profit.
  • Balance sheet: Shows the company's assets, liabilities, and owner's equity at a specific point in time.

Trading Account

• Calculates gross profit or loss by deducting cost of goods sold from revenue.
• This account shows how much profit was made from buying and selling goods.
• Important for assessing business efficiency in managing inventory.

Profit and Loss Account

• Calculates the net profit or loss after considering all expenses.
• Subtracts all operating and non-operating expenses from gross profit and determines net income.
• Often used for decision-making about business strategies, pricing changes, cost reduction, and more.

Balance Sheet

• Shows the financial position of a company at a specific point in time.
• Lists assets, liabilities, and the owner's equity.
• Assets are what the company owns (e.g., cash, inventory, property).
• Liabilities are what the company owes (e.g., loans, accounts payable).
• Owner's equity is the residual interest in the assets of the company after deducting liabilities.