Company Accounting for Limited Companies

Accounting information relates to the financial or economic activities of a business or organisation. It needs to be identified and measured by way of a "set of accounts”.

There are two broad types of accounting information:

• Financial Accounts which are geared toward external users
• Management Accounts which are aimed more at internal users.

The role of a director means there are responsibilities for the accurate maintenance of the Limited company accounts. Management accounts are key in making business decisions from day to day however; there is a legal obligation under the Companies act to produce a set of Year-End Accounts for external scrutiny. These figures are also submitted to HMRC for assessment of your tax position.

If, for whatever reason, you decide to make your company dormant or wish to cease trading there are defined procedures you should follow to produce Dormant or Cessation accounts.

Financial Accounts

The purpose of financial accounting is to show the financial position of a business at a particular point in time and demonstrate how that business has performed over a specific period. The two main financial accounting statements that help achieve this aim are:

• The Statement of Income and Retained Earnings (formerly known as the Profit and Loss account) for the reporting period
• A Statement of Financial Position ( formerly known as the Balance Sheet) for the business at the end of the reporting period

A Statement  of Financial Position shows, at a particular point in time, what resources are owned by a business, its assets, and what it owes to other parties, its liabilities. It also shows how much has been invested in the business and what the sources of that investment were. It effect it is a "snap-shot" of the financial position of the business at a specific point. While this is a useful picture, every time an accounting transaction takes place the picture will have changed.

By contrast, the Statement of Income and Retained Earnings provides a perspective on a longer time-period. If the Statement  of Financial Position is a snapshot of the business, then the Statement of Income and Retained Earnings is a sequence of pictures capturing the business' activities over time. These sequenced “snap-shots” detail what financial transactions took place in a particular period and what the overall result of those transactions were.

Ultimately the Statement of Income and Retained Earnings measures the company’s sales revenue, turnover or income, against its expenses, costs, for the period being measured.

Year-end Accounts

Under the Companies Act every company must prepare a formal set of accounts once a year. Normally, these accounts are for a period of 12 months ending on the official year-end of the company as recorded at Companies House (known as the 'Accounting reference date' or ARD).

The accounts must be in a specified format (as set out in the Companies Act) and are submitted to Companies House to put on public record.  They are also submitted to HMRC in support of the Corporation Tax calculations and Corporation Tax return.

The accounts will include a Statement of Income and Retained Earnings and Statement of Financial Position, together with notes to the accounts. However, the accounts submitted to Companies House does not contain a Statement of Income and Retained Earnings, so there is reduced disclosure of information in the public domain.

The normal deadline for statutory accounts filing at Companies House is 9 months after the year-end. For a 31 March 2018 year-end this will normally be 31 December 2018.

The deadline for the Corporation Tax payment is 9 months and one day after the year end so for a 31 March 2018 year-end, the Corporation Tax will be due on 1 January 2019.

The Corporation Tax return (CT600) that supports your payment is due 12 months after the year-end, which in this case would be 31 March 2019.

Year-end Accounts- The New Accounting Framework

Changes from FRSSE 2015 to FRS 102 Section 1A

For accounts period up to 31^st December 2015, statutory accounts are prepared in accordance with The Companies Act 2006 and Financial Reporting Standards for Small Entities 2015- this gave companies the option of reduced disclosures if they met the criteria for being a small company.

Following modifications to The Companies Act 2006, for accounts periods commencing 1^st January 2016, all companies must adhere to Financial Reporting Standards 102 going forward and as a small company there are further reduced disclosure requirements under FRS 102 section 1A.

What’s changed?

• The legislation reduces the mandatory number of notes in the statutory accounts and permits an abridged profit and loss account and balance sheet, although further disclosures are encouraged.
• How transactions are recognised and measured in the financial statements are based on the full FRS 102 requirements.
• The profit and loss account becomes the “Statement of Income and Retained Earnings”
• The balance sheet becomes the “Statement of Financial Position”.
• You are obliged to state the transition date in your company accounting policies – this is the first day of your comparative accounting period in which the changes take place.
•  There are some differences with regards to how you value assets- for example, if your company holds investment properties, then you are obliged to value them at their fair value, if you are able to do so.
• There is also a requirement to disclose the average number of employees in the period.
• The company is also permitted to submit reduced disclosure accounts to Companies House under s444 Companies Act 2006- in the form of a Statement of Financial Position and notes relating to same.

Management Accounts

Management accounts concentrate on reporting to people inside the business entity and are used to provide information to employees, managers, owner-managers and auditors. Management accounting is concerned primarily with providing current financial information as a basis on which to run your business.

Your management accounts reflect the cumulative calculations you see on your invoice statement during the month. They also incorporate drawings taken from your bank account as well as other adjustments that do not appear in your income statement such as bank transfers. They provide you with information that shows you the financial position of your business at month-end. You can see what funds you have taken out, what funds are available for distribution and the amounts you must set aside to meet your tax liabilities.