Introduction

Business organizations prepare final accounts with the purpose of ascertaining the profit earned or loss suffered during the year. This also enables them understand the financial position of their businesses at the end of the year. Typically, final accounts are prepared after checking the accuracy of the books of accounts by preparing what is called Trial Balance. Examples of Final Accounts include the following-[fusion_builder_container hundred_percent=”yes” overflow=”visible”][fusion_builder_row][fusion_builder_column type=”1_1″ background_position=”left top” background_color=”” border_size=”” border_color=”” border_style=”solid” spacing=”yes” background_image=”” background_repeat=”no-repeat” padding=”” margin_top=”0px” margin_bottom=”0px” class=”” id=”” animation_type=”” animation_speed=”0.3″ animation_direction=”left” hide_on_mobile=”no” center_content=”no” min_height=”none”]

1. Trading Account: Trading account is prepared for calculating the gross profit or gross loss arising or incurred as a result of the trading activities of a business. In other worlds, it is prepared to show the result of manufacturing, buying and selling of goods. If the amount of sales exceeds the amount of purchases and the expenses directly connected with such purchases, the difference is termed as gross profit.
2. Profit and Loss Account: A Profit and  Loss Account is prepared to contain all the items of losses and gains pertaining to a specific accounting period.   It is important to bear in mind that trading account only discloses the gross profit earned as a result of buying and selling of goods. However, business organizations have to incur a number of expenses which are not taken to trading account. Hence, a businessman is more interested in knowing the net profit earned or net loss incurred during the year. And this is why a profit and loss account is needful.
3. Balance Sheet: After ascertaining the net profit or loss of the business enterprise, the businessman would also like to know the exact financial position of his business. For this purpose a statement is prepared which contains all the Assets and Liabilities of the business enterprise. The statement so prepared is called a Balance Sheet because it is a sheet of balances of ledger accounts which are still open after the transfer of all nominal accounts to the Trading and Profit & Loss Account. Balances of all the personal and real accounts are grouped as assets and liabilities. Liabilities are shown on the left hand side o the Balance Sheet and assets on the right hand side.

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