The company accounts present a summary of an entity’s accounting
The company accounts present a summary of an entity’s accounting and financial activity relating to business operations over a one year period. This paper offered a detailed explanation on the company accounts from an entrepreneur’s perspective, computation of profit or loss, and flows of preparation of final accounts. There are three financial statements that aid in the realization of the core purpose of accounting which is communication of an entity’s financial status, supporting decision making, control of assets, systematic recording, law compliance, and planning future activities (Pendlebury & Groves 2004). First, the balance sheets shows what is owned and what it owed by the company at a fixed time. Secondly, the income statement shows the amount of money generated and spent in a company’s operations and financial activities over a given reporting period. Finally, the cash flow statement displays the changes in cash flows that signify the exchanges of cash between an entity and outside world over a given reporting period.
The second section presented a detailed explanation of the computation a company’s profit or loss. A company’s net profit is the surplus of gross profit plus other revenues over expenses for the reporting period, whereas the net loss is the surplus of expenses over gross profit plus other revenues for the reporting period. The explanation was subdivided into four main parts involving the computation of the gross profit, operating profit, profit before tax, and profit for the year. The accounting cycle starts with the recording of the business transactions in the original entry books and ends with the compilation of final accounts constituting the trading account, profit and loss account, and balance sheet. These final accounts prepared at the close of the financial year, which gives an accurate idea of the company’s financial position to the business owners and other stakeholders. In summation, the financial statements are principally recorded in journals then transferred to the ledgers, and afterwards, the final accounts are prepared.