The trading and profit & loss account and balance sheet prepared at the end of a year is known as Final accounts. While preparing the final accounts, there may be some items which are incurred in advance and some are outstanding. These items are to be adjusted in the final accounts for calculating the correct profit or loss of the business.
The main purpose of financial accounting is to prepare financial report that to find the true position of the company.
When any account books are maintained like journal, ledger then always doubles effect shown in entries.
For example: machinery purchased
Machinery a/c –Dr.
To cash a/c
So that when directly made the final account then made single entry then create error. So that to remove the error doubles effect shown to make the final account at the end of the year.
The double-entry rules can be helpful when we need to find a mistake in financial records. If total debits do not equal total credits, there must be a mistake. However, this system cannot ensure complete accuracy.
At the making ledger, double effect shown. When machinery account is prepared then entry record (to cash) and when cash account is prepared then (by machinery) is recorded.