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Manpreet Kaur, Lovely Professional University Unit 4: Final Accounts

Unit 4: Final Accounts Notes

CONTENTS
Objectives
Introduction

4.1 Objectives of Preparing Final Accounts
4.2 Preparation of Final Accounts
4.2.1 Classification of Expenditures

4.2.2 Classification of Receipts
4.3 Trading and Profit & Loss Account
4.4 Balance Sheet
4.5 Summary
4.6 Keywords

4.7 Self Assessment
4.8 Review Questions
4.9 Further Readings

Objectives

After studying this unit, you will be able to:
Define capital and revenue expenditure
Prepare trading and Profit and Loss a/c
Construct Balance Sheet

Introduction

In the present unit, you will study about the final accounts with adjustments. After studying this
unit, you will be able to understand the trading and profit and loss account, balance sheet and
key adjustments related to them. Every organisation prepares its final accounts after a particular
period to know its financial results and financial position. Final accounts mean profit and loss
account and the balance sheet. Profit and loss account also contains one more account, known as
trading account, and if the business is manufacturing any item or article, then Manufacturing
account is also there. All these accounts are prepared only after preparing trial balance.
4.1 Objectives of Preparing Final Accounts

You already know that final accounts are prepared at the end of a particular time period. The
final accounts plays an important role for every kind of organisation. There are two main
objectives of preparing final accounts: (1) to know the operational results i.e. final accounts are
prepared to know the profit or loss during a particular period through the profit and loss
account which is also known as income statement, and (2) to ascertain the financial position of
the business on a particular date through the balance sheet, also known as position statement.

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