Ans
– After the
preparation of books of accounts and a Trial Balance, every businessman becomes
interested in knowing the following:
(a) Whether he has earned a profit or
suffered a loss during the period covered by the trial balance?
(b) What is the financial position of
his business in terms of assets and liabilities on the closing day of the
accounting period?
To
know the above, the following two statements are prepared from the accounts
balances appearing in the Trial Balance:
(i)
Trading and Profit and Loss A/c: This
statement is prepared to know the profit or loss earned by a firm.
(ii)
Balance Sheet: This
is prepared to know about the financial position of a firm on a particular date.
The
above two statements (i.e. Trading
and Profit & loss A/c and balance Sheet) are collectively known as ‘Final
Accounts’. The information contained in these statements is used by the
management outside parties and taxation authorities to satisfy their different
needs.
