Importance Of Preparing Final Accounts

Importance Of Preparing Final Accounts

What do we mean by accounts or can we say final accounts; Every business person wants to know the final result of their work that was done throughout the year. Final accounts play an important role of providing the company's financial condition. This is the reason preparing final accounts is required for all the business. Basically, the final accounts include trading account, profit and loss account and balance sheet. Growth decisions are made from the outcome of the final accounts.

On the basis of the final accounts are several auxiliary books, cash books, sales/ purchasing books and other transactions carried out by the company, if you want to know the exact result of a specific company term, it is very important to record each and every transaction meticulously and very high accuracy, because a small mistake at the beginning can create a big mistake for the business because based on the final accounts the organizations make important decisions.

Why Final Accounts Need to be Prepared?

Since these accounts summarize all the information in all of the company's subsidiary books, they definitely contain real-time information, which is very useful in making the company's financial decision in addition;

  • Legal need to prepare the final accounts, as it is important to know the tax liability and send your final accounts to the government.
  • Know the profit and loss and the financial situation of the company.
  • You can get a better idea of the company's income and expenses, assets, and liabilities.
  • To support the company's reputation as through final accounts, a company can take the dividend decisions.
  • In addition, the Final Accounts help Management to compare data from last year and the current year, so that management can define new goals for the improvement of the company.

Characteristics of the final accounts:

As the final accounts consist mainly of trades, results and balance sheets and all accounts have their own importance, such as:

  1. Trading account: This is also called a manufacturing account and includes data related to sales and purchases (related to manufacturing) and expenses related to purchase or direct cost. It has two debit and credit sides in which the initial stock, the purchase and all direct costs are recorded on the debit side and the sales and closing of the stock or any loss of goods such as fire loss, goods destroyed in transit, are recorded on the credit side. By this account, it is possible to know the gross profit or the gross loss of the business at the end of the year.
  2. Profit and loss accounts: This includes the various revenues and expenses of the business related to management or general, or we can say, in addition to manufacturing here on the debit side all expenses, including depreciation and on the credit side, all revenues, such as commission revenue, discount etc. received are recorded and the gross profit or loss also transferred from the trading account and we obtain a net profit or loss from that account.
  3. Balance sheet: In the balance sheet, we have two columns, one is liability and the second is an asset and, as the name implies, we can obtain information from our shareholder funds, current liabilities (creditors, pending expenses, bank o / d), long-term liabilities, current assets (debtors, money, bank, inventory, prepaid expenses), the real value of fixed assets (machinery, utensils, and furniture, furniture, etc.)

Objective of maintaining the final accounts:

  • Provide the financial situation in the specific period:as it includes the balance sheet by which it is possible to know the complete financial condition of a company at the end of the year. From the trial balance, we can know the situation up to a specific period, but the balance sheet provides us with the information by the end of the year.
  • Provide the provisions: When making final accounts, the company makes several provisions for bad debts, natural disasters, general reserves, etc., this information can be obtained from the final accounts.
  • Accurate Information: In order to provide accurate information about the company's financial condition, it takes the basis of each transaction of the company, therefore it is necessary to keep its records updated, as in the future this will have a major impact on its business decisions.

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