Final Accounts are the accounts, which are prepared at the end of a fiscal year. It gives a precise idea of the financial position of the business/organization to the owners, management, or other interested parties. Financial statements are primarily recorded in a journal; then transferred to a ledger; and thereafter, the final account is prepared (as shown in the illustration). Show
Usually, a final account includes the following components −
Now, let us discuss each of them in detail − Trading AccountTrading accounts represents the Gross Profit/Gross Loss of the concern out of sale and purchase for the particular accounting period. Study of Debit side of Trading Account
Format of Trading Account
Manufacturing AccountManufacturing account prepared in a case where goods are manufactured by the firm itself. Manufacturing accounts represent cost of production. Cost of production then transferred to Trading account where other traded goods also treated in a same manner as Trading account. Important Point Related to Manufacturing AccountApart from the points discussed under the section of Trading account, there are a few additional important points that need to be discuss here −
RMC = Opening Stock of Raw Material + Purchases - Closing Stock
Profit and Loss AccountProfit & Loss account represents the Gross profit as transferred from Trading Account on the credit side of it along with any other income received by the firm like interest, Commission, etc. Debit side of profit and loss account is a summary of all the indirect expenses as incurred by the firm during that particular accounting year. For example, Administrative Expenses, Personal Expenses, Financial Expenses, Selling, and Distribution Expenses, Depreciation, Bad Debts, Interest, Discount, etc. Balancing figure of profit and loss accounts represents the true and net profit as earned at the end of the accounting period and transferred to the Balance Sheet.
Balance SheetA balance sheet reflects the financial position of a business for the specific period of time. The balance sheet is prepared by tabulating the assets (fixed assets + current assets) and the liabilities (long term liability + current liability) on a specific date. AssetsAssets are the economic resources for the businesses. It can be categorized as −
LiabilityA liability is the obligation of a business/firm/company arises because of the past transactions/events. Its settlement/repayments is expected to result in an outflow from the resources of respective firm. There are two major types of Liability −
Grouping of Assets and LiabilitiesThere may be two types of Marshalling and grouping of the assets and liabilities −
Financial Statements with Adjustments Entries and their Accounting TreatmentIn order to prepare a true and fair financial statement, there are some very important adjustments those have to be done before finalization of the accounts (as shown in the following illustration) −
What are unsold goods at the end of the accounting period?Closing stock is the unsold Goods that are remains in stores (finished goods,raw materials, work-in-process), in accounting terminology it is called as Asset. Closing stock = Opening stock + Purchases - Cost of goods sold.
Is the value of unsold goods lying in the stores at the end of the accounting period?(b) Closing Stock : It is the value of goods lying unsold at the end of the accounting year.
What will be the treatment of unsold stock left at the end of the year in the business?The stock of finished goods left unsold at the end of the year is known as closing stock. As closing stock represent an asset i.e. the unsold finished goods, it has a debit balance. Closing stock appears on the credit side of the trading account and on the asset side of the balance sheet.
What is closing stock?Closing stock is referred to as the amount of unsold goods that remain with the business on a given date. In other words, it can be said that these are inventory which are in business and are waiting to be sold.
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