Accounts are the financial records of an organisation that document business performance (income and expenditures) over a past period – typically a year. By law every business is expected to disclose a ‘true and fair view’ of their financial affairs, and as a result accounts are expected to comprise of several core elements, including a profit and loss account and a balance sheet.
When carefully collated and organised, this financial information can provide a basis for effective future business planning – pinpointing any losses and how these can be resolved and helping to track expenses and control costs. Accounts are particularly beneficial to external users of a business, including employees, authorities, bankers, shareholders and suppliers.
There are many different types of accounts, including company accounts and sole trader accounts. This page will look at these in-depth – highlighting crucial records required for each – whilst looking briefly into the role of TWC in helping to ensure accurate organisation of accounts.
Why are accounts needed?
Generally, businesses will be penalised if they fail to keep accurate, up-to-date records of their finances for required periods of time. Account keeping however has numerous internal benefits for the company – providing an advantageous level of transparency that can help in the analysis of a business, whilst ensuring effective tax returns and the prevention of theft or fraud. A company that keeps on top of a good record-keeping system will also be able to:
- pay tax accurately and on time
- apply for additional funding, such as a bank loan or overdraft facility
- efficiently track expenses, debts and creditors
- apply for, and receive benefits and credits
- report on profit or loss easily and quickly when required to do so.
Due to the time consuming nature of account keeping, many businesses choose to hire TWC to effectively organise all financial information into meaningful sets of data. New businesses may find TWC particularly beneficial for setting the foundations of a proper record keeping system.
What do accounts consist of?
Financial accounts typically consist of four key elements. These are a profit and loss account, balance sheets, a cash flow statement and a statement of recognised gains and losses – records sourced by important business activity documentation. Examples include invoices, receipts, paying-in books, rent books, bank statements, wages records, and copy sales invoices.
This is a summary of business transactions – the profits and losses – over a given period, comprised of documentation on sales and takings and a record of all purchases and expenses. The profit and loss account is produced essentially for business purposes – serving as an indication of business performance to owners, shareholders and/or potential investors. It is also relevant information for HMRC to check a business’s tax calculations.
Limited companies are by law expected to produce a profit and loss account, whereas self-employed sole traders and most partnerships are not required to do so. They do however need to keep similar records to complete their self-assessment tax return fully and accurately.
A balance sheet is a basic guide to an organisation’s assets (what is owed) and liabilities (what it owes) at a particular date. This financial statement shows how the business is being funded and how these funds are being utilised. There are two ways in which a balance sheet may be used.
- as a business analysis tool to improve the management of a business
- to help owners and other interested parties (shareholders, employees, creditors etc.) to assess the worth of the business at any given moment.
Cash flow statement
This shows how a business has generated or disposed of cash and liquid funds over a given period. Effective management of cash flow is vital for business survival and growth – any costs need to be balanced and carefully timed with incoming funds.
Statement of recognised gains and losses
These refer to records of all gains and losses since the previous set of accounts that are not included in the normal accounts. (i.e. changes caused by currency fluctuations, property revaluation, profits earned by associates and joint ventures etc.)
Types of accounts
Below we have provided a list of the financial records specific businesses should keep that TWC can compile.
All self-employed workers need to keep accurately organised accounts. These records will enable success completion of a self-assessment tax return, and answer any questions from HMRC if investigated. For many self-employed workers, account keeping can be time consuming, especially if they have several different sources of income and/or need to register for VAT.
As a result, TWC can organise your financial records to ensure HMRC requirements are adhered to. This is particularly beneficial for individuals who may feel uncomfortable handling percentages and transactions. TWC are reliable and can offer in-depth advice on all working practices and are knowledgeable of the UK’s tax and legal system.
There are a number of ways in which a partnership can be defined, but it typically refers to a business arrangement of two or more individuals. Partnerships mean that ownership rights are divided, and thus each partner will be entitled to separate capital account for investments and his/her share of net income or loss, and a separate withdrawal account.
TWC can prepare Partnership accounts per HMRC and your requirements.
There is strict criteria of what information must be collated for company accounts and these include records about the company itself and financial accounting records.
The necessary details required to provide information about the company itself include:
- information on directors, shareholders and company secretaries
- promises for the company to repay loans at a specific date in the future (‘debentures’), and who they owe this money to
- promises made by the company to make payments if something goes wrong and it’s the company’s fault (‘indemnities’)
- the results of any shareholder votes and resolutions
- transactions documenting when shares in the company are bought
- information of any loans, mortgages, etc., secured against the company’s assets.
As for general accounting records, companies must make sure they collate documents on the following:
- all money received and spent by the company
- details of any assets owned by the company
- debts the company owes, or is owed
- all goods bought and sold
- details of who bought and sold goods
- all stocktaking used to calculate the stock figure.
These records need to be kept by the company for at least six years from the end of the company’s last financial year.
Please contact TWC for a bespoke accounting service specific to your and HMRC requirements.
How much will hiring TWC cost to prepare my period end accounts?
How much you spend hiring TWC will depend on how much work is required to do. We charge a flat fee £40.00 per hour for accounting services.