Closing of Accounts
Year-end Closing of Accounts
One of the key objectives of accounting is to prepare and present summarized financial information to the users and stakeholders of the business. The accounting process is designed to record each and every transaction occurring during a specific period; however, presenting information showing each transaction or the detailed information of every ledger and account cannot be presented to the users as it shall serve no beneficial purpose. However, information is presented in the summarized form under various heads by aggregating transactions of similar nature.
Accountants prepare and present various types of reports according to the needs and requirements of the users and stakeholders. Financial statements are, however, the most common way to present the summarized financial information. Commonly known financial statements are comprised of the following statements;
1. Profit and Loss Statement
2. Balance Sheet Statement
3. Cash Flows Statement
4. Statement of Changes in Equity
5. Note to Financial Statement
The composition of Each type of statement will be elaborated in comping sections.
Financial statements are commonly used statements and are very famous among users of accounting information. Because of its popularity and wider use, Financial Statements are prepared and presented in a standard format.
Presentation of Accounting information in a standard format has the following advantages
- A similar standard format makes it possible and convenient to compare these financial statements presenting financial performance and status of financial position at a particular date
- with the financial statements of other businesses within the industry as well as
- with the previous year’s result of the same business
- The standard format makes it easier for any person with very basic knowledge of accounting to understand, conclude and make decisions from the information given through Financial statements.
Due to the wide use of financial statements among the investors and general public as well as investors the format and content of the financial statements are usually governed by National regulators. Further International bodies like IASB and FASB continuously issue instructions and Standards to be followed by organizations, so a common and understandable standard format can be used for the preparation of financial statements.
Before moving towards the closing and preparation of the Financial Statement process, we will read about each component of the Financial Statement in more detail.
