Accounting Advice

How to read company accounts

07 Aug 2013

For the uninitiated, trying to interpret a set of statutory accounts can be tricky.

And there are lots of reasons to want to do so - you might be thinking about acquiring a company, engaging in some competitive research or even just trying to understand your own company's year end accounts.

These tips assume you have to hand a set of full accounts for a UK based private limited company. The format is a bit different for accounts for publicly listed entities (which are published for the benefit of investors and generally include more information than necessary) or indeed abbreviated accounts (which is all small UK based companies are required to submit and includes the bare minimum of information which unfortunately isn't terribly informative).
  

Company accounts work like this: 

The company's trading activity is recorded on the Profit and Loss statement. This essentially records how much has been sold and how much has been spent running the company.

This profit figure then gets adjusted to reflect the cash actually generated by the business through the Cash Flow statement. Once it emerges from the Cash Flow statement, then you can see how it turns up on the Balance Sheet.

In these three articles, we explore:

1. how to understand the profit and loss statement which definition of profit is the most useful

2. how to understand cashflow statement and how this then flows through to the balance sheet

3. and finally how to read a balance sheet.

By the way, if you haven't had a quote from an accountant recently, why not try drop in to see us at our London head office or try our Instant Accounting Quote?
  

Keir Wright-Whyte

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Senior Accountant

0207 043 4000

About the author

Originally graduating with a degree in geography from Edinburgh University, Keir claims that he was then tricked into becoming an accountant by one of the UK's top 5 accountancy practices.The deception extended to the usual training in audit and associated activities.

Keir subsequently worked in a number of advisory roles with clients including in the energy trading, pharamaceuticals and financial services sectors.

He loves working at Accounts & Legal because of the variety of work and clients, the excellent team ethos and morale, the importance placed on genuinely helping and being useful for clients and because he believes what he does matters to clients and helps the firm.

  

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