PREPARATION OF FINAL ACCOUNT

PREPARATION OF FINAL ACCOUNTS:
      Final accounts of a partnership firm are made after a prescribed period which is generally one year.
Meaning of Final Accounts:
    Final accounts here in partnership means Trading Account, Profit and Loss Account and Balance Sheet. Some firms divide Profit and Loss Account in two parts. First part is Profit and Loss Account and second part is Profit and Loss Appropriation Account. Some accountants are of the view that after finding out net profit, record of interest on capitals and remuneration to partners should be made in Profit and Loss Appropriation Account, because payment of remuneration etc. to partners is a sort of appropriation of profit.
According to one view final accounts of a partnership firm include preparation of Trading Account, Profit and Loss Account and Balance Sheet.
According to another view final accounts of a partnership firm include preparation of Trading Account, Profit and Loss Account, Profit and Loss Appropriation Account and Balance Sheet.
If firm is a manufacturing unit also, its final accounts may include Manufacturing Account, Trading Account, Profit and Loss Account, Profit and Loss Appropriation Account and Balance Sheet.
Final Accounts of a Partnership Firm and a Sole Trader:
 Rules and principles for preparation of final accounts in the case of a sole Trader and Partnership Firm are the same, but following points are worth nothing at the time of preparation of final account of a firm:
(i) Net Profit:
              Net profit is divided in profit sharing ratio amongst the partner and then if capitals are fixed, it is transferred to Partners' Current Accounts and if capitals are floating, it is transferred to Partners' Capital accounts.
(ii) Capital:
              Each partner's capital is recorded separately in the Balance Sheet.
(iii) Balances of Current Accounts:
               If balances of current accounts of the partners are credit balances, they are recorded in the liability side but if they are debit balances, they are recorded in the asset side.
(iv) Order of Recording Assets and Liabilities:
               Nothing is mentioned in the Indian Partnership Act regarding the order in which assets and liabilities are to be recorded in the Balance Sheet but generally in the liability side outside liabilities are recorded first and partners' capitals afterwards and in the asset side either liquid assets are recorded first and fixed assets afterwards or vice versa according to the need of the firm.