Financial Accounting Formal Accounts The Companies Act Accounting

Financial Accounting

Formal Accounts • • The Companies Act Accounting rules and regulations Whether the company is listed (i. e. is a plc) Company size

Companies Act of 1985. This act specifies the minimum information that must be included in the accounts that are filed at Companies House. • Statutory obligation to prepare annual accounts • Accounts must be 'true and fair' representation • Audited by an independent, practicing accountant.

Accounting Principles • • Matching or Accruals Principle Prudence Going Concern Materiality

Matching / Accruals • Revenues and Costs are recognised as they are earned rather than as cash is received or paid. • Applies to all Limited Companies • Now a statutory requirement (SSAP 2) resulting from Companies Act 1985

Prudence • Accounts should always be conservative • No profit should be recorded until it is realised • All losses should be anticipated as soon as possible • A counter to the optimism of typical businessmen

Going Concern • Accounts are required on a periodic basis • Accounting Period • The entity will continue to trade profitably • Different measurement rules apply to limited life entities

Materiality • Only items that are financially significant need be considered • Accounts need to be practical in size Absurdity is not mandatory

The Accounts • • The chairman's statement Director's report Auditor's report Profit and Loss account Balance sheet Cash flow statement Notes to the accounts

Chairman’s Statement • the organisation's mission and strategy • general business plans • a summary of the overall trading performance compared to the economy and the business sector • what the future holds • any special interest items or events that occurred during the year such as mergers and acquisitions

Director’s Report • principal activities of the organisation • proposed disposition of the profit showing how much will be paid in dividends and how much transferred to reserves • major changes in the fixed assets or their value • directors, directors' interests and shareholdings • any changes in the directors

Director’s Report • equal opportunity and minority group employment policies • any donations to political parties or charities if over £ 200 • personal liability insurance taken out for directors or auditors • the status of the company • the appointment of the auditors

Profit and Loss Account • How worth has changed over a period of time • Dynamic measure of organisational performance

Profit and Loss Account Income Expenses Net Profit Interest & Tax OWNERS MONEY

Profit and Loss Account Income Expenses Net Profit Interest & Tax OWNERS MONEY Sales Revenue Turnover Trading Income

Profit and Loss Account Income Direct Expenses: • Production Labour • Materials Expenses Net Profit Interest & Tax Indirect Expenses: OWNERS MONEY • Sales Marketing • Development & Engineering • Management

Profit and Loss Account Income Expenses Net Profit Interest & Tax OWNERS MONEY Interest on Capital Loans + Taxation !

Profit and Loss Account £ (000) Sales Revenue 25. 5 Cost of Sales 13. 3 Gross Profit 12. 2 Overheads 6. 0 Net Profit (PBIT) 6. 2 Interest 2. 4 Profit Before Taxation 1. 6 Profit After Taxation 2. 2 3. 8