Explain the purpose of preparing Final Accounts.

Final Accounts refer to the financial statements prepared at the end of an accounting period. For trading organisations, final accounts include the Trading Account, Profit and Loss Account and Balance Sheet. For non-trading organisations, they include the Receipts and Payments Account, Income and Expenditure Account and Balance Sheet.

Purposes of preparing Final Accounts:

1. To ascertain the result of operations — Trading and Profit and Loss Accounts help compute gross profit/loss and net profit/loss for trading concerns. Income and Expenditure Account helps determine surplus or deficit for non-trading organisations.
2. To know the financial position — The Balance Sheet shows the assets, liabilities and capital of the organisation, thus depicting its financial position on a specific date.
3. To know the cash position — Receipts and Payments Account (in non-trading organisations) tells the management about the cash balance at the beginning and end of the year.
4. To facilitate decision-making — Final accounts provide information needed by management for taking decisions regarding pricing, expansion, cost control, investment and so on.
5. To meet legal/statutory requirements — Companies and other organisations are legally required to prepare and present final accounts at the end of each financial year.
6. To provide information to stakeholders — Final accounts inform members, donors, creditors, lenders, government and other stakeholders about the working and position of the organisation.
7. To facilitate comparison — Comparison of final accounts of different years helps assess growth, identify trends and take corrective action.