Final accounts gives an idea about the

profit Profit may refer to: Business and law * Profit (accounting), the difference between the purchase price and the costs of bringing to market * Profit (economics), normal profit and economic profit * Profit (real property), a nonpossessory intere ...

ability and financial position of a

business Business is the practice of making one's living or making money by producing or Trade, buying and selling Product (business), products (such as goods and Service (economics), services). It is also "any activity or enterprise entered into for pr ...

to its management, owners, and other interested parties. All business transactions are first recorded in a

journal A journal, from the Old French ''journal'' (meaning "daily"), may refer to: *Bullet journal, a method of personal organization *Diary, a record of what happened over the course of a day or other period *Daybook, also known as a general journal, a ...

. They are then transferred to a

ledger A ledger is a book or collection of accounts in which account transactions are recorded. Each account has an opening or carry-forward balance, and would record each transaction as either a debit or credit in separate columns, and the ending or ...

and balanced. These final tallies are prepared for a specific period. The preparation of a final accounting is the last stage of the

accounting cycle An accounting as an information system (AIS) is a system of collecting, storing and processing financial and accounting data that are used by decision makers. An accounting information system is generally a computer-based method for tracking acco ...

. It determines the financial position of the business. Under this, it is compulsory to make a trading account, the profit and loss account, and balance sheet. The term "final accounts" includes the trading account, the

profit and loss account An income statement or profit and loss accountProfessional English in Use - Finance, Cambridge University Press, p. 10 (also referred to as a ''profit and loss statement'' (P&L), ''statement of profit or loss'', ''revenue statement'', ''stateme ...

, and the

balance sheet In financial accounting, a balance sheet (also known as statement of financial position or statement of financial condition) is a summary of the financial balances of an individual or organization, whether it be a sole proprietorship, a business ...

Legal provisions

Sections 209 to 220 of the Indian Companies Act, 2013 deal with legal provisions relating to preparation and presentation of final accounts by companies. Section 210 deals with the preparation of final accounts by companies, while section 211 deals with the form and the contents of the balance sheet and the profit and loss account.

Trading account

A trading account shows the results of the buying and selling of

goods In economics, goods are items that satisfy human wants and provide utility, for example, to a consumer making a purchase of a satisfying product. A common distinction is made between goods which are transferable, and services, which are not tran ...

. This sheet is prepared to demonstrate the difference between the selling price and the

cost price In retail systems, the cost price represents the specific value that represents unit price purchased. This value is used as a key factor in determining profitability, and in some stock market theories it is used in establishing the value of stoc ...

. The trading account is prepared to show the trading results of the business such as gross profit earned or gross loss sustained by the business. It records the direct expenses of a business firm. According to J. R. Batlibboi,

"The Trading Account shows the result of buying and selling goods. In preparing this account, the general establishment charges are ignored and only the transactions in goods are included."

Profit and loss account

This account is prepared to ascertain the net profit/loss and expenses of a business during an accounting year.It records the indirect expenses of a business firm, like rent, salaries, and advertising expenses. Profit and loss a/c includes expenses and losses as well as income and gains, which have occurred in business other than the production of goods and services.

Balance sheet

The balance statement demonstrates the financial position of a business on a specific date. The financial position of a business is found by tabulating its

asset In financial accountancy, financial accounting, an asset is any resource owned or controlled by a business or an economic entity. It is anything (tangible or intangible) that can be used to produce positive economic value. Assets represent value ...

s and liabilities on a particular date. The excess of assets over liabilities represents the

capital Capital may refer to: Common uses * Capital city, a municipality of primary status ** List of national capital cities * Capital letter, an upper-case letter Economics and social sciences * Capital (economics), the durable produced goods used f ...

sunk into the business and reflects the financial soundness of a company. Now it is known as the statement of financial position of the company. Financial statements