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LPC - BLP - COMPANY ACCOUNTS (DISTINCTION)
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Notes on company accounts
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BLP – COMPANY ACCOUNTFinal accounts are the profit and loss accounts and balance sheets. Companies, like partnerships,
also have these.
Separate legal entity.
As a separate legal entity company needs capital to be put into it – at the start of its
existence and perhaps at later points in its life.
This capital will hopefully produce some profit – however, unlike a sole trader or
partnership, the profit cannot automatically be “given” to the owners of the company (i.e.
the shareholders)
Companies have a separate tax regime – in the company accounts there is provision for tax
liability that is not present in partnerships or sole traders.
Companies Acts.
There are strict requirements imposed on companies in terms of the:
o layout of their final accounts
o the information that must be provided for group companies.
Companies Act 2006, part 15.
All companies:
• Directors must prepare accounts for each financial year and give copies of these accounts to
shareholders, debenture holders etc (Section 394)
• Directors can only sign off the accounts if they are satisfied that they give a true and fair
view of the assets, liabilities, financial position and profit and loss.( Section 393)
Significant duty on the directors to make sure the accounts are accurate and provided to those who
need them.
Small Companies.
There are reduced levels of disclosure for small and medium companies
• Your company will be ‘small’ if it has any 2 of the following:
o a turnover of £10.2 million or less
o £5.1 million or less on its balance sheet
o 50 employees or less
• If your company is small, you can send abridged accounts to Companies House. Abridged
accounts are made up of a balance sheet and profit & loss account that contain a sub-set of
the information normally contained in the accounts
o More simplistic and less complicated set of accounts.
• The balance sheet must have the name of a director printed on it and must be signed by a
director.
• Sending abbreviated accounts means less information about your company will be publicly
available.
• If your company is small, you can also:
o use the exemption so your company’s accounts don’t need to be audited
o choose whether to send a copy of the director’s report or not
Medium Companies.
• To be “medium” must satisfy 2 or more of the following requirements:
• Turnover not more than £36m
• Balance Sheet not more than £18m
• No more than 250 employees (on average)
, • Medium-sized companies may omit certain information from the business review (or
strategic report) in their directors’ report
• Medium-sized companies preparing Companies Act accounts may choose to file a slightly
reduced version of the profit and loss account
• (see regulation 4 of The Large and Medium-sized Companies and Groups (Accounts
and Reports) Regulations 2008).
Auditing.
• Companies must get their accounts audited (except in the case of “small companies”,
dormant companies or non-profit making subject to public audit)
Filing at Companies House.
• Accounts must be filed at Companies House. This has to occur every year.
• Directors of the company are responsible for doing this
• Exception for small companies: may file a balance sheet & auditors’ report
• Medium sized: can omit certain information and can file a slightly reduced version of the
P&L account
The format of company accounts.
• Very similar to sole trader & partnership
• We still have an appropriation account on the P&L account - However, it does differ to that
used for a partnership.
• Big difference is that a director’s salary is an expense that can be deducted from income
unlike the salary of a partner. This is because a directors salary is treated much like an
employee salary.
Capital.
• To understand the structure of company accounts we first have to appreciate the “capital”
of a company
• There are two types:
o Shares – these are issued to the shareholders as the “owners” of the company
(equity finance)
o Debentures – these are issued to “bodies” that lend money to the company (debt
finance).
Shares.
• Shares can be issued at par or at premium
• Issuing at par means that the share is sold to the shareholder for its nominal value
• Issuing at premium means that the share is sold to the shareholder for more than its face
value.
Ledger entries.
• Issuing at par means that:
o the company receives cash (therefore a cash account entry)
o the company has a liability to its shareholders (so a share capital ledger is opened)
• Issuing at a premium means that:
o the company receives cash (therefore a cash account entry)
o the company has a liability to its shareholders (so opens share capital and share
premium ledger)
Balance Sheet.
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