What are Final accounts? Why are they prepared?

Ans – After the preparation of books of accounts and a Trial Balance, every businessman becomes interested in knowing the following:
(a) Whether he has earned a profit or suffered a loss during the period covered by the trial balance?
(b) What is the financial position of his business in terms of assets and liabilities on the closing day of the accounting period?
          To know the above, the following two statements are prepared from the accounts balances appearing in the Trial Balance:
(i) Trading and Profit and Loss A/c: This statement is prepared to know the profit or loss earned by a firm.
(ii) Balance Sheet: This is prepared to know about the financial position of a firm on a particular date.

          The above two statements (i.e. Trading and Profit & loss A/c and balance Sheet) are collectively known as ‘Final Accounts’. The information contained in these statements is used by the management outside parties and taxation authorities to satisfy their different needs. 

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