Final Accounts:
Learning Objectives:
-
What is trading and profit and loss account?
-
What is the the difference between trial
balance and balance sheet?
-
Prepare trading and profit and loss account
and balance sheet.
Having proved the arithmetical accuracy of
ledger by means of trial balance we should proceed to ascertain our profit
or loss for a period, in order to determine the profit or loss of a business
and its financial position, final accounts at the end of a particular
period are prepared. The term "final accounts" means statements which
are finally prepared to show the profit earned or loss suffered by the firm
and financial state of affairs of the firm at the end of the period
concerned. In order to know the profit or loss earned by a firm, income
statement or trading and profit and loss account is prepared. This statement
is also called "statement of operations." While the financial position is
judged by means of preparing a balance sheet of the business. This statement
is also called "position statement" or "statement of financial condition".
In this section of the website we shall study the method of preparing these
two statements.
The basis of these statements is trial
balance. The trial balance includes all the accounts from the ledger. the
nature of which may be either, personal, real, or nominal. It should be
noted that from the trial balance only nominal accounts are transferred to
the profit and loss account. The real or personal accounts go to the balance
sheet.
Trading
Account:
A trading account is an account which
contains, " in summarized form, all the transactions, occurring, throughout
the trading period, in commodities in which he deals" and which gives the
gross trading result. In short, trading account is the account which is
prepared to determine the gross profit or the gross loss of a trader.
Click here to read full article.
Profit and Loss Account:
Profit and loss account is the account whereby a trader determines the net
result of his business transactions. It is the account which reveals the net
profit (or net loss) of the trader.
Click here to read full article.
Difference Between Trading Account and Profit and Loss Account:
The main difference between trading account
and profit and loss account is that the gross profit or loss which is
derived from the trading account shows the trend of the business and the
profit and loss account reflects on the management of the business the final
outcomes of the concern.
Click
here to read full article.
Balance Sheet:
A balance sheet is a statement drawn up
at the end of each trading period stating therein all the assets and
liabilities of a business arranged in the customary order to exhibit the
true and correct state of affairs of the concern as on a given date.
Click here to read full article.
Difference
Between Trial Balance and Balance Sheet:
distinction/difference between trial balance
and balance sheet.
Click here
to read full article
Examples of Trading and Profit and Loss Account and Balance Sheet:
There are two examples of trading and
profit and loss account and balance sheet.
Click here to see these examples. |
