Final Account
• All transaction are recorded into journal and Total journal entries indicate into ledger of accounts
• All ledger account are closed and its last balance indicates into trial balance.
• And trial balance is prepared to know arithmetical correct or not?
• How much profits gain or losses occur?
• What is the financial position of the business at the end of year?
• How much capital liabilities and assets of business?
• For those purpose we prepare real result of the business at the end of year is known as final account or Annual account.
There are two objective:
1) To know the real result of business
– In the final account prepare trading account and profit & loss account.
– These account show gross profit and net profit or losses of accounting at the end of year.
2) To know the financial positions of the business
– To know the result of financial position of business at the end of year
– To prepare the statement like balance sheet.
– Balance sheet indicate all assets and liabilities
– This statement indicate economical situation of the business
-------------------------------------------------------------------------------------------------------------
In final account, we prepared three types of report or statement
1) Trading Account
• we prepare one account, on one side of that account total purchase, as well as all expenses. on the other side total sales as well as incomes.
• The difference between two sides is called Gross profit.
• The account shows gross profit is also known as Trading account.
Following equation used in Trading account
• Gross Profit = Net sales – Cost of Goods sold
• Cost of Goods sold = Opening stock + purchase + purchase expenses + closing stock
• Cost of Goods sold = Sales – Gross Profit
---------------------------------------------------------------------------------------------------------------
2) Profit & Loss Account
• Trading account only show the direct expenses related to stock but some expenses or income are to be account is related to trading of stock as known as net profit and net loss.
• If any administrative expenses and selling expenses are deducted from gross profit, So, we get net profit.
• The account shows net profit is also known as profit & loss account.
Objective of Profit & Loss Account
• Knowledge of net profit or losses during the year
• Include all indirect expenses such as office expenses, distribution expenses of business.
• Include all indirect incomes.
• This account net profit & net loss transfer to capital account.
• So to know the real position of capital of business
---------------------------------------------------------------------------------------------------------------
3) Balance sheet
• Balance sheet is a statement not an account.
• After preparation of trading account and profit & loss account
• A businessmen to know the financial position of business at the end of year.
• The amount of claim against the resource of business.
• Balance sheet view Assests and liabilities
• Where liabilities view on left side and Assests on right sheet
• At the end of page both side totals are always equals.
• Balance sheet is part of Final Account.
Advantages of Balance Sheet
• Balance sheet gives the information of Assets and liabilities of capital.
• Balance sheet is a part of final account.
• To give the information of real position of the business.
• To give the information of working capital.
• All adjustment including in balance sheet, so to know real economical position of business.
• To gives the information of current assets, fixes assets, long terms & short terms liabilities.
--------------------------------------------------------------------------------------------------------------
Rectification of Errors
• A few entries might be either incorrect or used at the wrong place.
• In financial accounting, the process of correcting such mistakes is known as Rectification of errors.
• Rectification of errors is referred to as the procedure of revising mistakes made in recording transactions.
Two most common types of errors,
• which are usually occurred at the time of preparation of Financial Statements
1) Error which Effect only One Account
• Omission of posting of balance in a Trial Balance.
• Error of carried forward of balance.
• Error of casting and posting.
2) Error which Effect Two or more Accounts
• The nature of errors, which occur during preparation of the Financial Statements are
• Error of posting in wrong account.
• Error of principle.
• Error of omission.
Method of Rectification of Errors
• There are three types of methods used in rectification of Errors
1) Replacing Correct Figure by Striking Off the Wrong Figure
2) Record transaction wrongly debited to ledger by mistake
3) If there is an omission of recording a transaction
Download link for more detail: An overview of Final Account
Or follow my blog from below link
https://cdprajapati.blogspot.com/p/blog-page.html
0 Comments