17. Final Accounts (Trading, Profit & Loss Account and Balance Sheet)
Final accounts serve as crucial financial statements prepared at the end of an accounting period, detailing the profitability and financial position of a business. The Trading Account determines gross profit or loss, the Profit and Loss Account reflects net profit or loss, and the Balance Sheet outlines the financial status. While informative, these accounts require additional analyses for comprehensive decision-making.
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What we have learnt
- Final Accounts provide essential summaries of financial performance.
- The Trading Account measures gross profit or loss.
- The Profit and Loss Account assesses net profitability.
- The Balance Sheet illustrates the financial position of a business at a specific time.
- Adjustments must be made for outstanding expenses, prepaid expenses, and other accruals to ensure accuracy.
- Final Accounts do not account for inflation or reflect non-financial factors.
Key Concepts
- -- Final Accounts
- Financial statements prepared at the end of an accounting period to ascertain business results and financial position.
- -- Gross Profit
- The profit calculated as Net Sales minus total direct costs, indicating the efficiency of production and sales.
- -- Net Profit
- The profit remaining after all indirect costs are deducted from gross profit, signifying overall profitability.
- -- Balance Sheet
- A financial statement showing the company's assets, liabilities, and owner's equity at a specific point in time.
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