After preparing the trial balance final accounts are prepared to achieve the objectives of accountancy. A business man is interested to know the final results of the business – whether he has earned profit of suffered loss in that particular accounting period. Two main objectives of maintaining accounts are to find out the profit or loss made by the business at the end of regular periodic intervals and to ascertain the financial position of the business on a given date. For achieving these objectives, the businessman prepares certain financial statements at the end of each accounting period. In order to know profit or loss earned by a firm, income statement or trading or profit and loss account is prepared. Balance Sheet or position statement will portray the financial position of a firm on a particular date. These two statements i.e., trading and profit and loss account and balance sheet are prepared to give the final results of the business, that is why both these are collectively known as final accounts. Thus, final accounts include the preparation of:
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- Trading and Profit and Loss Account: and
- Balance Sheet
According to American Institution of Certified Public Accountants, “Financial Statement are prepared for the purpose of presenting a periodic review or report on the progress by the management and deal with the status of the investments in the business and; results achieved during the period under review”
Thus Final accounts are the means of conveying to the management, owners and interested outsiders a concise picture of profitability and financial position of a business. It is the end product of accounting process which gives consolidated accounting information of the accounting period, after the accounting period is over.