How is the Additional Information obtained?

• Information relating to Profits

The ledger accounts relating to the organisation are classified into three types. Personal, Real and Nominal.

» Nominal Accounts

Nominal accounts are related to expenses, losses, incomes and gains.

Since ascertaining profits or losses involves dealing with incomes, gains, expenses and losses we can conclude that all the nominal accounts together would give us the information relating to the profits or losses made by the organisation.

» Trading and Profit and Loss Accounts

To derive the information relating to profits from these nominal accounts a ledger account by name "Trading and Profit & Loss a/c" is prepared.

Almost in all cases, we use two separate ledger accounts "Trading a/c" and "Profit and Loss a/c" to derive information relating to profits with a greater detail. [The more the information we need, the more the accounting heads we need to maintain].

Preparation of these ledger accounts requires us to think beyond just transferring the information in the nominal accounts into these accounts.

• The Position of the organisation

The ledger accounts maintained within an organisational accounting system are classified into three as Personal, Real and Nominal.

» Real Accounts

Real accounts are related to tangible aspects. In general we can identify that all asset accounts are real accounts.

» Personal Accounts

Personal accounts are related to persons and organisations. These are persons/organisation which owe the organisation or to whom the organisation owes. In effect they either form creditors (liabilities) or debtors (assets).

Since all the nominal accounts have been dealt with in deriving the information relating to profits and we are left with only the real and personal accounts which represent either assets or liabilities we can conclude that all the real and personal accounts together give us the information relating to the position of the organisation.

» Balance Sheet

To derive the information relating to the position of the organisation from these real and personal accounts a statement by name "Balance Sheet" is prepared. However preparing the Balance sheet need us to think a bit beyond just listing out the information relating to the personal and real accounts in the statement.