Final accounts are prepared at the end of an accounting cycle. They illustrate a company’s financial situation as well as its profitability.
The trading account, profit and loss account, and balance sheet are all types of final accounts.
A trial balance serves as the foundation for final accounts. All ledger account balances are included in the trial balance. It covers the balances of the accounts for costs, revenue, assets, liabilities, capital, and draws.
What should final accounts include For Limited Companies?
- A balance sheet that shows the value of everything the firm owns, owes and is owed at the end of the financial year.
- A profit and loss statement detailing the company’s revenue, operating costs, and profit or loss for the fiscal year(Only on the HMRC application).
- Any required notes to the accounts.
- A report from the director (unless the company is a micro-entity).
Types Of Final Accounts
-Balance Sheet
The balance sheet displays your business’s overall financial health by recording every transaction from the start. A balance sheet is a financial statement that shows the assets, liabilities, and shareholder equity of a business.
-Trading account
A trading account is an investment account that holds securities, cash, or other assets. A trading account most typically refers to a day trader’s primary account. The assets stored in a trading account are distinct from those held in a long-term plan.
-Profit and loss account
The profit and loss account is included in a business’s financial statement and shows whether they have made a profit or loss. It summarises a business’s trading results over a specific time period (usually one year), including both revenue and expenditure.
Importance of Final Accounts
The main reason for creating a final account is to keep track of all of a business’s commercial activity. Final accounts are required by a variety of financial statement users including shareholders, lenders, creditors, suppliers, customers, and the government. Every company is expected to keep financial records, produce financial reports and analytics.
Final accounts let shareholders easily analyse their investments, allowing them to make well-informed decisions. Shareholders are more interested in the organization’s liquidity situation as well as the quantity of profit and dividends made.
Final accounts play a key role in helping businesses achieve consistent growth using various strategies for increasing revenue, establishing a strong client base, and expanding job possibilities.