What is Meant by Final Account?

What is Meant by Final Account?

Final accounts are the means of conveying to the management, owners and interested outsiders a concise picture of profitability and financial position of the business. It is the end product of accounting process which gives a consolidated accounting information of the accounting period, after the accounting period is over.

These accounts summaries all the accounting information recorded in the subsidiary books and the ledger running into hundreds or thousands of pages. The basis of preparation of final accounts is the trial balance containing debit and credit balances.

Accordingly, accounts are classified into five categories.

1. Assets Account
2. Liabilities Account
3. Capital Account
4. Account of Expenses and Loss items
5. Account of Income and Gain items or Revenue Account

Illustration: 

Classify the following accounts as per accounting equation approach:

1. Capital brought in
2. Land purchased
3. Purchases
4. Sales
5. Cash paid
6. Cash received
7. Subscription received
8. Furniture purchased
9. Sales returns
10. Purchase returns
11. Bank A/c
12. Wages paid
13. Bank overdraft
14. Outstanding salary
15. Interest accrued

Solution

1. Capital A/c
2. Assets A/c
3. Expenses A/c
4. Revenue A/c
5. Assets A/c
6. Assets A/c
7. Revenue A/c
8. Assets A/c
9. Revenue A/c
10. Expenses A/c
11. Assets A/c
12. Expenses A/c
13. Liabilities A/c
14. Liabilities A/c
15. Assets A/c