Reading Accounts, Balance Sheets etc
Discussion
What type of entity's accounts are you looking at -
sole trader?
partnership?
limited company?
charity?
trust?
Profit and loss accounts and balance sheets are fairly standard in general terms but they do vary in layout and detail depending on what type of organisation the accounts refer to.
sole trader?
partnership?
limited company?
charity?
trust?
Profit and loss accounts and balance sheets are fairly standard in general terms but they do vary in layout and detail depending on what type of organisation the accounts refer to.
Abridged accounts tell you very little - so hardly worth the effort. They just show a reduced disclosure balance sheet and no profit and loss account at all.
Detailed company accounts vary depending on how big the company is. For a small company they will consist of a summary profit and loss account, a balance sheet and a more detailed profit and loss account. There will also be some extra pages containing additional non monetary information about the company plus there will also be some notes to the figures in the accounts.
The above details are required under Company Law, even for fairly small limited companies.
Most of the information you need from the profit and loss account will, as you might expect, show up in the detailed P&L.
The detailed P&L will show -
Income (sales plus other income such as interest received)
Less Direct Costs (Purchases, Materials, Direct Labour etc)
Less Overheads (Admin costs including admin salaries), property costs, general expenditure, depreciation charge on fixed asets.
Net Profit (or Loss)
The summary profit and loss account will also show any Corporation Tax being deducted from the Net Profit.
The Balance sheet shows
Fixed Assets (plant and machinery, land and buildings, motor vehicles etc)
Current Assets (Trade Debtors, Other Debtors, Stocks and Work in Progress, Cash at bank and on hand)
Current Liabilities (Trade Creditors, short term loans, bank overdrafts, loans to directors, balances due in respect of taxes such as Corporation Tax, PAYE, VAT etc)
If the repayment of a loan is being spread over a number of years,the loan balance exceeding one year is shown separately under a "Long Term Liabilities" section.
At the bottom of the balance sheet there will be a statement of capital and reserves. This normally shows the value of the share capital issued by the company to shareholders plus the accumulated reserves of the company at the balance sheet date. Accumulated reserves is the total of all the retained profits of the company from its commencement less the total of all distributions paid out by the company to shareholders i.e. dividends (in most cases).
Detailed company accounts vary depending on how big the company is. For a small company they will consist of a summary profit and loss account, a balance sheet and a more detailed profit and loss account. There will also be some extra pages containing additional non monetary information about the company plus there will also be some notes to the figures in the accounts.
The above details are required under Company Law, even for fairly small limited companies.
Most of the information you need from the profit and loss account will, as you might expect, show up in the detailed P&L.
The detailed P&L will show -
Income (sales plus other income such as interest received)
Less Direct Costs (Purchases, Materials, Direct Labour etc)
Less Overheads (Admin costs including admin salaries), property costs, general expenditure, depreciation charge on fixed asets.
Net Profit (or Loss)
The summary profit and loss account will also show any Corporation Tax being deducted from the Net Profit.
The Balance sheet shows
Fixed Assets (plant and machinery, land and buildings, motor vehicles etc)
Current Assets (Trade Debtors, Other Debtors, Stocks and Work in Progress, Cash at bank and on hand)
Current Liabilities (Trade Creditors, short term loans, bank overdrafts, loans to directors, balances due in respect of taxes such as Corporation Tax, PAYE, VAT etc)
If the repayment of a loan is being spread over a number of years,the loan balance exceeding one year is shown separately under a "Long Term Liabilities" section.
At the bottom of the balance sheet there will be a statement of capital and reserves. This normally shows the value of the share capital issued by the company to shareholders plus the accumulated reserves of the company at the balance sheet date. Accumulated reserves is the total of all the retained profits of the company from its commencement less the total of all distributions paid out by the company to shareholders i.e. dividends (in most cases).
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