The primary function of accounting is to accumulate accounting data in a manner that the amount of profit made or loss suffered during a period can be determined along with the status of the business in financial terms. Statements prepared for this purpose are called final accounts. Final accounts are also termed as financial statements.
Preparation of final accounts is the last phase of the accounting process. The process of accounting starting from recording of source documents in books of accounts to preparation of trial balance has already been discussed in units 1 to 5 of chapter 2. This chapter deals with preparation of final accounts of sole proprietors headed by one person only. For the purpose of final accounts, the sole proprietors can be classified into non-manufacturing and manufacturing business entities. Final accounts of non-manufacturing entities include Trading account, Profit and Loss Account and Balance Sheet while final accounts of manufacturing entities include Manufacturing account, Trading account, Profit and Loss account and Balance Sheet.
This chapter has been divided into two units :
(i) Final accounts of Non-manufacturing entities and
(ii) Final accounts of Manufacturing entities for the purpose of convenience in understanding of students.
An overview of the final accounts of sole proprietors can be explained with the help of the following chart :