What Are Final Accounts In Accounting

By Final Accounts, we mean those Financial Statements i.e., Income Statement / Profit And Loss Account And Balance Sheet, Statement of Retained Earnings and Statement of Cash Flows which are prepared at the end of the accounting period. It is the 5^th Step of Accounting Cycle. Five Types / Kinds of Accounts from Trial Balance are transferred to Income Statement And Balance Sheet. All Expenses and Incomes are transferred to Income Statement while all the closing balances of Assets, Liabilities and Equity are transferred to Balance Sheet.

Purpose of Final Accounts

Why Final Accounts Are Prepared? or Why we need to prepare Final Accounts? Basically, the purpose of Final Accounts is to show Financial Performance, Financial Position of the business, changes in retained earnings of the business and performance of cash flows at the end of accounting period. The Income Statement shows us financial performance that is why it is also named as Statement of Comprehensive Income. It shows the performance of management that how well they are in utilizing the resources of business to earn maximum Net Profit / Net Income at minimum cost. Since the balance sheet shows us the financial position, so it is called Statement of Financial Position of Assets, Liabilities And Owner’s Equity or Equity on a particular time. The cash flows statement shows cash from operating activities, cash from investing activities and cash from financing activities.