COMPANY ACCOUNTING FOR SMALL BUSINESSES
Accounting data is about a company’s or organization’s financial or economic activity. A “collection of accounts” must be used to identify and measure it.
Accounting data can be divided into two categories: financial and non-financial.
External-facing financial accounts are those that are oriented toward external users.
Internal users will benefit from Management Accounts.
A director’s position entails accountability for the accurate maintenance of the limited company accounts and tax returns . Although management accounts are important in making day-to-day business decisions, the Companies Act requires that a set of Year-End Accounts be produced for external examination. These numbers are also sent to HMRC so that they can examine your tax situation.
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If you decide to make your firm dormant or discontinue trading for any reason, there are specific steps to follow in order to establish Dormant or Cessation accounts.
The goal of financial accounting is to indicate a company’s financial situation at a given point in time and how it has performed over time. The following are the two key financial accounting statements that aid in achieving this goal:
- The Profit and Loss account (previously known as the Statement of Income and Retained Earnings) for the reporting period.
- The business’s Statement of Financial Position (formerly known as the Balance Sheet) at the end of the reporting period.
A Statement of Financial Position reveals what resources a business owns, its assets, and what it owes to other parties, its liabilities, at a given point in time. It also reveals how much money has been invested in the company and where that money came from. In effect, it’s a “snapshot” of the company’s financial situation at a certain point in time. While this is a useful illustration, it will have altered each time an accounting transaction occurs.
The Statement of Income and Retained Earnings, on the other hand, gives a longer-term perspective. If the Statement of Financial Position is a snapshot of the company, the Statement of Income and Retained Earnings is a series of photographs documenting the company’s operations over time. These chronological “snapshots” show what financial transactions took place over a given time period and what the overall outcome was.
Finally, the Statement of Income and Retained Earnings compares a company’s sales revenue, turnover, or income to its expenses, or costs, for the time period under consideration.
ACCOUNTS AT THE END OF THE YEAR
Every company is required by the Companies Act to prepare a formal set of accounts once a year. These accounts are typically for a 12-month period, concluding on the company’s formal year-end as recorded at Companies House (known as the ‘Accounting reference date’ or ARD).
The accounts must follow a specific format (as outlined in the Companies Act) and must be filed to Companies House for publication. They’re also sent to HMRC to support Corporation Tax calculations and returns.
A Statement of Income and Retained Earnings, as well as a Statement of Financial Position and notes to the accounts, will be included in the accounts. However, because the accounts filed with Companies House do not include a Statement of Income and Retained Earnings, there is less information available in the public domain.
The customary deadline for filing statutory accounts at Companies House is nine months following the end of the fiscal year. This will generally be 31 December 2018 for a year-end of 31 March 2018.
The Corporation Tax payment deadline is 9 months and one day after the year end, therefore for a year-end of March 31, 2018, the Corporation Tax will be payable on January 1, 2019.
The Corporation Tax return (CT600) that supports your payment is due 12 months after the year-end, which is 31 March 2019 in this case.
Further Reading: Do you need an accountant for a limited company?
YEAR-END ACCOUNTS – THE NEW ACCOUNTING FRAMEWORK
FRSSE 2015 to FRS 102 Section 1A Changes
Statutory accounts are prepared in line with The Companies Act 2006 and Financial Reporting Standards for Small Entities 2015 for the period up to December 31, 2015; this provided companies the option of reducing disclosures if they fit the criteria for being a small company.
Following changes to the Firms Act 2006, all companies must now follow Financial Reporting Standards 102 for accounting periods beginning on or after January 1, 2016, and as a small business, you have even more reduced disclosure responsibilities under FRS 102 section 1A.
What’s different now?
- The Act minimises the amount of mandatory notes in statutory accounts and allows for a simplified profit and loss account and balance sheet, however additional disclosures are recommended.
- The whole FRS 102 rules govern how transactions are recognised and measured in financial statements.
- The “Statement of Income and Retained Earnings” replaces the profit and loss account.
- The “Statement of Financial Position” is created from the balance sheet.
- The transition date, which is the first day of your comparative accounting period in which the changes occur, must be stated in your firm accounting policies.
- There are certain distinctions in how assets are valued; for example, if your company has investment properties, you must value them at their fair market value if you are able to do so.
- In addition, the average number of employees during the time must be disclosed.
- Under Section 444 of the Companies Act 2006, the firm may also submit reduced disclosure accounts to Companies House in the form of a Statement of Financial Position and related comments.
ACCOUNTS OF MANAGEMENT
Management accounts are used to offer information to employees, managers, owner-managers, and auditors and focus on reporting to those inside the corporate organisation. Management accounting is primarily concerned with delivering current financial data as a foundation for running your organisation.
Your management accounts reflect the monthly computations that appear on your invoicing statement. They also include withdrawals from your bank account, as well as other modifications such as bank transfers that do not display on your income statement. They give you information about your company’s financial situation at the end of the month. You can see how much money you’ve taken out, how much money you have available for distribution, and how much money you need to set aside to cover your tax obligations.
Related topic: When and how to file your annual accounts with Companies House