Final Accounts

Final Accounts include trading and profit and loss account or revenue account, balance sheet, statement of changes in equity, cash flow statement, and other statements and notes related to above. you should understand that the trial balance is prepared by copying balances from ledger accounts and it is from the ledger account balances we should prepare the trading and profit and loss account and balance sheet and nothing to do with books of prime entry. the purpose of preparing the trading and profit and loss account is to ascertain whether the business made a profit or loss after doing business for a certain period. here there is a tie period. you can prepare the above revenue account for
one, three, six, nine, or twelve months. The financial year is twelve months and the end date is known as the balance sheet date. traditionally we prepare accounts for twelve months period. the purpose of a balance sheet is to give the asset and liabilities of the business on the balance sheet date.
all the nominal account balances, incomes, expenses, losses, and gains should be transferred to the revenue account at the end of the financial year leaving out the asset and liability balances to copy them and prepare the balance sheet as we do when we prepare the trial balance. please note that the profit and loss account should include all incomes and expenses on an accrual basis to arrive at the correct net profit or loss for the period.

it is not the amount paid but the amount payable and not the amount received but the amount receivable that should be shown in the profit and loss account against expenses and incomes so that the correct figure will appear in the profit and loss account relevant to the period. the bill payable for the year should be credited in the relevant expenses account and the amount receivable should be debited in the income account when transferring balances to the profit and loss account. we should easily identify the nominal accounts and real accounts and do the transfers and copying them correctly when they prepare a revenue account and balance sheet. sometimes income and expenses account become asset or liability accounts at the end after transferring the correct balance to the revenue account. The trading account is the first section of the trading and profit and loss account where you arrive at the gross profit or loss by comparing the cost of sales with sales and the latter is the profit and loss account which gives the final result net profit or loss for the period.

(Note: financial reports are prepared for users who have a reasonable knowledge of business and economic activities and who review and analyze the information diligently. some phenomena are inherently complex and cannot be made easy to understand. Excluding information on those phenomena might make the information easier to understand, but without it, those reports would be incomplete and therefore misleading. Therefore matters should not be left out of financial statements simply due to their difficulty, as even well-informed and diligent users may sometimes need the aid of an adviser to understand information about complex economic phenomena.)