Annual accounts, also known as statutory accounts, are a series of financial statements prepared at the end of each fiscal year. In the United Kingdom, all private limited corporations must prepare statutory accounts.
A limited company’s financial activity and performance are reported in statutory accounts. Corporation tax can also be calculated using annual accounts.
Copies of statutory accounts should be delivered regularly.
- Companies House is a government agency that regulates businesses.
- HMRC (Her Majesty’s Revenue and Customs).
- Attendees of the company’s general meetings.
It is a legal necessity to file statutory accounts. You have a choice in how you submit your accounts as a small or medium firm. You can deliver a full set of accounts, often known as statutory or annual accounts, or an abridged set, which has less material but still meets Companies House and HMRC compliance standards.
- This article discusses the information that must be included in statutory accounts as well as the critical numbers to keep an eye on.
- Statutory accounts are necessary for your shareholders to understand how your business is doing and to maintain your records up to date with Companies House.
- A balance sheet, profit and loss account, cash flow statement, notes to the accounts, and a directors’ report, as well as a cover, contents, and company information pages, must be included in statutory accounts.
- You must include many key figures, and if you know what to look for, you can even check up on how your competitors are doing.
What is the purpose of a statutory account?
Information page of the company:
Your company’s name and registered number, as well as the address of your registered office and the names of your directors and accountant, should all be included on this page.
Report of the Directors:
A director’s report is a financial document that is needed to be filed by bigger limited corporations after the fiscal year. The director’s report explains your company’s primary activities, as well as its performance and prospects, as well as any dividends that may be distributed to shareholders.
The report includes a list of the directors who served during the reporting year, as well as a summary of their responsibilities.
You can use this part to reflect on the previous year and describe business conditions and financial performance, as well as any events that may have impacted the balance sheet. This can be followed by a look at the next 12 months’ possibilities.
A director should sign the report, along with a declaration that it has been authorized by the board.
Smaller businesses with a turnover of £10.2 million or less, a balance sheet of £5.1 million or less, and 50 workers or less are exempt from filing a Directors’ Report in the Statutory Accounts.
The balance sheet’s goal is to give an overview of a company’s financial situation. It accomplishes this by laying out a company’s total assets, as well as any amounts owed to lenders or banks, as well as the amount of equity.
A balance sheet depicts the worth of everything your company possesses as well as what it owes, as well as what is required to be paid up until the end of the financial year represented by this set of accounts.
It includes numbers for the current and preceding years, as well as a numbered reference to any explanatory comments on the Notes page. T The elements listed below are the most crucial to include:
- Fixed assets
- Tangible assets
- Current assets
- Cash at bank and in hand
- Total current assets
- Creditors: amounts falling due within one year
- Net current assets/(liabilities)
- Total assets less current liabilities
- Creditors: sums due after a period of more than one year
- Provision for liabilities
- Net assets
- Capital and reserves
- Called up share capital
- Profit and loss account
- Shareholders’ funds
A director should sign the balance sheet, along with a declaration that it has been accepted by the board.
The important metrics to watch when you or your shareholders study your accounts are those that demonstrate how much cash is available in the business.
Keep an eye out for trade debtors, or the money owing to you by your customers, as well as trade creditors, or the money owed to you by your suppliers.
If your clients owe you a lot of money, it will hurt your cash flow, so you should try to impose stricter payment conditions. Similarly, you should try to negotiate the best terms with your suppliers.
Analyze all of your debt, both short and long term, as well as the value and status of any loans. Debt is divided on the balance sheet between current creditors, who are owed money within the next 12 months, and longer-term borrowings, which include commercial loans and any repayable During the epidemic, government grants or loans were taken out.
On the balance sheet, loan or grant repayments are categorized. Payments due in the next 12 months, for example, are classified as current creditors on a five-year loan, while the balance is classified as longer-term debt.
Depending on the amount of time you have to repay your loans, you may not have much free cash.
Profit and loss account:
The profit and loss account depicts a company’s revenue and losses over a period.
After deducting all expenses from the income, the profit and loss statement reveals how much money your company produced in a given accounting period. If total expenditures are fewer than sales, a net profit is obtained; if total expenditures are more, a net loss is incurred.
The profit and loss account calculates your profits by subtracting your costs from your sales. The following is a summary of the account:
- Gross profit
- Operating profit
- Tax on ordinary activities
- Cost of sales
- Profit on ordinary activities before tax
- Profit for the financial year.
The pre-tax profit, also known as EBITDA (profits before interest, taxes, depreciation, and amortization), is one of the most important metrics in this section. In the notes to the accounts, you can explain depreciation, tax, interest, the value of fixed assets and amortization, and intangible assets.
In your internal management accounts, you can provide more detailed detail on certain categories of turnover or costs, but you do not have to disclose such figures in your statutory accounts.
Statement of cash flows:
A cash flow statement, also known as a funds flow statement, is a financial statement that summarizes a company’s cash transactions for a specific accounting period.
A statement of cash flows is a financial statement that displays a company’s liquidity and is thus useful in establishing the company’s short-term viability, such as its capacity to pay bills, wages, and other immediate obligations. Investors, lenders, and creditors can use cash flow statements to assess a company’s financial health and ability to repay obligations.
Only cash and cash equivalents are addressed in a cash flow statement. Any operations that do not directly affect cash collections or payments, such as depreciation or bad debt write-offs, are removed from the cash flow statement but may be recorded in the footnotes.
The cash flow statement illustrates how much money comes in and goes out of a business. Money from operating activities, investment returns, tax costs, capital spending, and dividends paid are often included.
It is a useful tool for determining how frugal a company is because it demonstrates how money is spent. You must, however, consider facts from the balance sheet to gain an indication of cash due in the future.
Filing your accounts:
After registering with Companies House, you must file your first accounts 21 months later.
After that, you must file nine months after the conclusion of your company’s fiscal year. Depending on how long you wait to file, you might be fined up to £1,500.
If you own a small business, you do not have to file a full set of accounts with Companies House. You can file an abridged version instead, but a full version must still be sent to shareholders and HMRC together with your company tax return.
Notes to the accounts:
The balance sheet or profit and loss account can benefit from additional context and depth provided by notes to the accounts.
The notes must contain an explanation of the accounting principles you employ, as well as the rationale for preparation and how you depict turnover and depreciation.
You can show whether money is owing to a bank, a firm, or the taxman by adding numbers to certain values in the balance sheet or profit and loss account.
You might include further information under taxable fixed assets, such as the cost of a new asset, as well as depreciation and net book value.
You can categorize creditors into trade creditors, deferred income, taxes, and other creditors.
Do you require the services of an accountant?
Statutory accounts can be technical and time-consuming, and making a mistake can result in fines. Our small business accountants have extensive expertise assisting businesses with the preparation and submission of their financial statements.