Final Accounts Free PDF Download: Resources from Vedantu

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.

What Constitutes Final Accounts?

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:

• Customer billings.

• Allocation of overheads for the following financial year.

• Writing downs of any assets which may be necessary.

• Income tax accruals.

• Wages and any accruals on payroll tax.

• Additional adjustments for obsolete inventory, bad debts or return of goods sold.

• Amortisation and depreciation of asset value.

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.

What are the Common Constituents of Final Accounts?

Most companies and corporations across the world use primarily 3 types of final accounts:

• Trading account.

• Profit and loss account.

• Balance sheet.

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.

Trading Account

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

Profit and Loss Account

As the name suggests the profit and loss account gives a track of all the profit or any indirect expenses that the form accepts during that particular accounting year. Keeping track of your success and flaws helps a lot when working for or as a firm.

Once a trading account is finished, the profit and loss account is readied. This final account is also known as an income statement in some companies. It is started as soon as the gross profit or gross loss from the table made earlier is transferred.

All indirect expenses, including salary, office and administrative expenses, rent, wages and costs on marketing and advertising, are mentioned on the debit side.

All indirect incomes, including dividends received on shares, interests earned, profits earned on asset sales and recovered debts go to the credit side. 

Here is a Sample P & L Account

Balance Sheet

A proper tabular representation of assets (fixed assets+current assets) and the liabilities (long term liability+current liability) which sums the financial position of a business for a specific period of time is termed as a balance sheet.

Since this is, by definition, a sheet of information and not a statement, there are no elements of ‘to’ and ‘by’ as in the other accounts. The balance sheet consists of a company’s total assets, liabilities and capital as on the last day of a financial year.

All LHS elements of a balance sheet are liabilities. All RHS elements of a balance sheet are assets. During Balance Sheet preparations, the liabilities must equal the assets.

Here is a Sample of the Balance Sheet of a Fictitious Company

The Balance Sheet is the most important financial tool for any enterprise to assess its financial position and where it stands for future planning and implementation.

Balance Sheet also helps identify areas where the company is facing hurdles and difficulties. The management can then plan accordingly. With these final accounting examples, you would now be able to better grasp its intricacies. To have a better understanding of final accounts and learn how to prepare them accurately, find more study material with Vedantu 

What is a Manufacturing Account?

When a firm manufactures goods all by itself then manufacturing accounts are prepared. It represents the overall cost of production. The account made during this time period is later moved to a trading account also, to keep the process going on.

The Concept of Income:

In exchange for goods and services, the payment received is called income. Income can be of different forms which include gross income, net income, national income and personal income.

American accounting association gives the most authentic definition of income as stated below

"The realized net income of an enterprise measures its effectiveness as an operative unit and is the change in its net assets arising out of 

• the excess or deficiency of revenue compared with the related expired cost and 

• other gains or losses to the enterprise for sales exchange or other conversions of assets."

Final accounts are useful as it provides the final result of any progress. Keeping track of your activity makes your action plans more reliable and flexible. The primary statements are the income statement, balance sheet and statement of cash flows. For example, when somebody is leaving a hotel, then they are provided with a final bill that they owe. Final accounts have a lot of advantages which makes a running policy more reliable and leaves the firm in a remarkable form.