Small Business Advice

What are statutory accounts?

11 May 2016

Statutory accounts are an important part of running your business so that your shareholders see how your company is performing and to keep your records updated with Companies House.

More commonly referred to as annual accounts, there are a number of important figures you must include and if you know what to look out for you could even check up on how your competitors are doing.

We reveal when you need to file and the key numbers to look out for.

What goes into a statutory account?

A company accounts must include a balance sheet, notes, a profit and loss account, cashflow statement and a directors’ report.

What is a balance sheet used for?

A balance sheet shows the value of everything that the company own and what it owes as well as what is due to be paid up to the last day of the financial year.

The main numbers to watch are those that show how much cash is available in the business.

Look out for trade debtors, the amount owed to the company by clients, as well as trade creditors, which is the amount the company owes to its own suppliers.

Balance Sheet 2

Look at short or long term debt and the value or status of any loans. The debt will be split between current creditors, money owed within 12 months, and longer term borrowings.

If a company has lots of loans to repay it may not have much spare cash, but this depends how long they have to pay back.

So what are notes?

The numbers on their own only tell part of the story.

Many figures will have notes accompanying them at the bottom of the accounts. These explain more about who money is owed to and where there may have been one-off payments such as a fine.

This provides more context to a company account, for example, they may show where money is owed to a bank, a company or the taxman.

Directors’ report

The directors’ report outlines the prospects of the company and any dividends that may be paid to shareholders.

Bigger companies may use it as an opportunity to look back over the past year and explain their financial performance and look ahead to the next 12 months.

The report shows the names of directors during the reporting year, the activities of the firm and any events that may hit the balance sheet.

Profit and loss account

The profit and loss account ultimately shows your profits by taking the sum of sales minus your costs.

Profit And Loss

It can be complicated by different categories of sales or costs such as a business or travel expense.

But the most important number is often nearer the bottom, reading profit for the financial year.

This will often be the pre-tax profit, sometimes called EBITDA, earnings before interest tax depreciation and amortisation.

You would then need to check the notes for explanations on what is included in depreciation, the value of fixed assets and amortisation, intangible assets.

The P&L account will also separately list interest and tax owed.

What is a cashflow statement?

The amount a company makes in cash profit isn’t always the best sign of its health as there are often other costs to pay.

The cashflow statement shows money coming into a company and going out. It will typically include money form operating activities, returns on investment, tax charges, capital spending and dividends paid.

It is a good way of seeing how frugal a company is as it shows how money is spent. However, you would need to see the balance sheet as well to get an idea of funds due in the future.

When do I need to file?

Your first accounts need to be filed 21 months after registration with Companies House.

After that you need to file nine months after your company’s financial year ends.

Calendar

If you file late you could be fined up to £1,500 depending on how long the delay is.

You don’t have to file a full set of accounts to Companies House if you are a small business.

Instead you can filed an abridged version, which is just a summary and often excludes the profit and loss account. A full version still needs to go to shareholders and to HMRC with your company tax return.

Keir Wright-Whyte

photo

Managing Director

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, pharmaceuticals 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.

Keir's primary role is to ensure that new clients with complex businesses or needs are on-boarded in the best way and he is a "trouble shooter" both for clients and where complex issues arise internally. He also helps the accounting teams strive to improve what we do for clients, whether processes or services.

When not debiting or crediting, Keir has a penchant for fixing old buildings, skiing, surfing and cycling.

  

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