FINAL ACCOUNTS :

When a person starts a business he wishes to know the financial performance of his business. A convinient and universally accepted
method of knowing this is to ascertain the profit or loss at yearly intervals (1st April to 31st March) and the financial position of the business on a given date. He can ascertain these by preparing the Final Accounts, which is prepared on the basis of the Trial Balance. The preparation of Final Accounts is the last step in the accounting cycle and that is why they are called Final Accounts.

Final Accounts include the preparation of

i) Trading and Profit and Loss Account ; and

ii) Balance sheet.

Final accounts are the means of conveying the profitability and financial position to management, owners and interested outsiders of
the business. Final accounts have to be prepared every year, to make a continuous assessment of the business for a completed period. It must be kept in mind that expenses and incomes for the full accounting period are to be taken into account.

Suppose, the firm closes its books on 31st March and rent for the month of March has not been paid, this expense (rent) has been incurred and yet to be paid. Therefore, it would be proper to include the rent for the month (March) along with the rent of the year to know the true profit. In a firm there will be a number of items, both expenses and incomes, which have to be adjusted. If such items are not adjusted, the final accounts will not reveal the true and fair picture of the business performance. All such items which need to be brought into books of account at the time of preparing final accounts are called “adjustments”. Journal entries passed to effect the required adjustments are known as adjusting entries.