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The preparation of a final accounting is the last stage of the accounting cycle. It determines the financial position of the business. Under this, it is compulsory to make a trading account, the profit and loss account, and balance sheet. The term "final accounts" includes the trading account, the profit and loss account, and the balance sheet.
Adjusting entries for prepayments are necessary to account for cash that has been received prior to delivery of goods or completion of services. When this cash is paid, it is first recorded in a prepaid expense asset account; the account is to be expensed either with the passage of time (e.g. rent, insurance) or through use and consumption (e.g ...
Once the accounts balance, the accountant makes a number of adjustments and changes the balance amounts of some of the accounts. These adjustments must still obey the double-entry rule: for example, the inventory account and asset account might be changed to bring them into line with the actual numbers counted during a stocktake.
To ensure the reliability of the financial records, reconciliations must, therefore, be performed for all balance sheet accounts on a regular and ongoing basis. A robust reconciliation process improves the accuracy of the financial reporting function and allows the finance department to publish financial reports with confidence.
A trial balance is an internal financial statement that lists the adjusted closing balances of all the general ledger accounts (both revenue and capital) contained in the ledger of a business as at a specific date. This list will contain the name of each nominal ledger account in the order of liquidity and the value of that nominal ledger balance.
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However, there are instances of accounts, known as contra-accounts, which have a normal balance opposite that listed above. Examples include: Contra-asset accounts (such as accumulated depreciation and allowances for bad debt or obsolete inventory) Contra-revenue accounts (such as sales allowances) Contra-equity accounts (such as treasury stock)
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