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Final Accounts:

Learning Objectives:

  1. What is trading and profit and loss account?

  2. What is the the difference between trial balance and balance sheet?

  3. Prepare trading and profit and loss account and balance sheet.

Having proved the arithmetical accuracy of ledger by means of trial balance we should proceed to ascertain our profit or loss for a period, in order to determine the profit or loss of a business and its financial position, final accounts at the end of a particular period are prepared. The term "final accounts" means statements which are finally prepared to show the profit earned or loss suffered by the firm and financial state of affairs of the firm at the end of the period concerned. In order to know the profit or loss earned by a firm, income statement or trading and profit and loss account is prepared. This statement is also called "statement of operations." While the financial position is judged by means of preparing a balance sheet of the business. This statement is also called "position statement" or "statement of financial condition". In this section of the website we shall study the method of preparing these two statements.

The basis of these statements is trial balance. The trial balance includes all the accounts from the ledger. the nature of which may be either, personal, real, or nominal. It should be noted that from the trial balance only nominal accounts are transferred to the profit and loss account. The real or personal accounts go to the balance sheet.

Trading Account:

A trading account is an account which contains, " in summarized form, all the transactions, occurring, throughout the trading period, in commodities in which he deals" and which gives the gross trading result. In short, trading account is the account which is prepared to determine the gross profit or the gross loss of a trader. Click here to read full article.

Profit and Loss Account:

Profit and loss account is the account whereby a trader determines the net result of his business transactions. It is the account which reveals the net profit (or net loss) of the trader. Click here to read full article.

Difference Between Trading Account and Profit and Loss Account:

The main difference between trading account and profit and loss account is that the gross profit or loss which is derived from the trading account shows the trend of the business and the profit and loss account reflects on the management of the business the final outcomes of the concern. Click here to read full article.

Balance Sheet:

A balance sheet is a statement drawn up at the end of each trading period stating therein all the assets and liabilities of a business arranged in the customary order to exhibit the true and correct state of affairs of the concern as on a given date. Click here to read full article.

Difference Between Trial Balance and Balance Sheet:

distinction/difference between trial balance and balance sheet. Click here to read full article

Examples of Trading and Profit and Loss Account and Balance Sheet:

There are two examples of trading and profit and loss account and balance sheet. Click here to see these examples.


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