Final Accounts: Financial Statements

Meaning of Final Accounts: Preparation of Final Accounts

Each and every limited company must prepare financial statement at the end of a financial period.

Usually financial period is for a year.

Under financial statement, income statement (combined trading account and profit and loss account); profit and loss appropriation account balance sheet and cash flow statement are prepared.

Final account is prepared by every business organization at the end of accounting period.

Trading account is prepared to determine gross profit or gross loss of the company.

Profit and loss account is prepared to find out net profit or net loss of the business activities of the company.

Profit and loss appropriation account is prepared to show the provision made for dividend, transfer to reserve fund etc out of the net profit of the company.

The balance sheet shows the financial position of the business firm as well as non-profit organization. 

Apart from the above financial statements, a separate manufacturing account is prepared by manufacturing company.

The stock of raw materials, work-in-progress and finished goods are adjusted in manufacturing account.

Different manufacturing costs are aggregated to calculate the cost of manufacturing.

Some manufacturing concerns add mark-up profit before transferring the cost of manufacture to income statements.

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Preparation of Final Accounts

Final accounts are also known as financial statements.

These are prepared to know about operating results and overall financial position to the company.

Joint Stock Company needs to prepare its final account at the end of every financial year.

Generally, final accounts of a company involve the following statements:

a.     Manufacturing account

b.    Trading account

c.     Profit and loss account (income statement)

d.    Profit and loss appropriation account (retained earnings account)

e.     Balance sheet (statement of financial position)

According to Company Act, annual financial statement should be prepared by the board of directors of a public limited company every year at least thirty (30) days prior to the holding of its annual general meeting.

In the case of private limited company, within the six months of the expiry of its financial year.

According to company act, financial statement involves the following statements:

a.     Balance sheet as at the last date of the accounting or financial year.

b.    Profit and loss account of the accounting or financial year.

c.     Description of cash flow of the accounting or financial year.

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