Q.What is Final Account ? Discuss their objectives.
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Start your 14-day free trial to unlock the full solution →Final Accounts = Trading A/c + Profit & Loss A/c + Balance Sheet, prepared to show results and position.
What is Final Account?
Final Accounts refer to the set of financial statements — the Trading Account, the Profit and Loss Account, and the Balance Sheet — prepared by a business at the end of an accounting period (usually a financial year), using the balances carried forward from the Trial Balance, in order to ascertain the operating result (profit or loss) of the business for that period and its financial position as on the last day of that period.
Objectives of Final Accounts:
- To ascertain Gross Profit/Gross Loss — the Trading Account shows the result of the trading (buying and selling of goods) activities of the business.
- To ascertain Net Profit/Net Loss — the Profit and Loss Account, starting from Gross Profit and adjusting all indirect expenses and other incomes, shows the overall net result of the whole business for the period.
- To ascertain the financial position — the Balance Sheet shows the assets, liabilities and capital of the business as on a particular date, so stakeholders know what the business owns and owes.
- To provide information to various stakeholders — owners, management, investors, lenders, employees, government and others rely on final accounts for decisions such as investment, lending, taxation and wage negotiation.
- To enable comparison — of the business's own performance over different years, and with other similar businesses, helping assess trends and efficiency.
- To meet statutory/legal requirements — final accounts are often legally required (for tax assessment, audit, filing with regulators) and serve as the basis for compliance.
OR
What is Balance Sheet?
A Balance Sheet is a statement (not an account) that shows the financial position of a business — i.e., its Assets, Liabilities and Capital — as on a particular date, prepared on the principle:
Assets = Liabilities + Capital
Why is it prepared?
- To know the exact financial position of the business — i.e., what the business owns (assets) and what it owes (liabilities), on a given date.
- To ascertain the amount of Capital/owner's equity employed in the business at that date (after adjusting for profit/loss and drawings during the period). …
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