Understanding Limited Company Accounts
The accounts of a UK limited company typically consist of several key components.
These components collectively provide an overview of the financial health and performance of a limited company, enabling stakeholders to make informed decisions.
Balance Sheet
This provides a snapshot of the company's financial position at a specific point in time, typically the end of the financial year. It includes assets (what the company owns), liabilities (what the company owes), and shareholders' equity (the difference between assets and liabilities).
Profit and Loss Statement (Income Statement)
This shows the company's financial performance over a specific period, usually the financial year. It includes revenue (sales), expenses, and ultimately the company's profit or loss.
Cash Flow Statement
This tracks the cash inflows and outflows from operating, investing, and financing activities during the reporting period. It provides insight into how cash is being generated and used by the company.
Notes to the Financial Statements
These provide additional information and explanations about the items presented in the balance sheet, income statement, and cash flow statement. They may include details about accounting policies, contingent liabilities, related party transactions, and other relevant information.
Director's Report
A narrative report prepared by the company's directors that typically provides an overview of the company's performance during the financial year, discusses significant events or developments, outlines future prospects, and may include other relevant information.
Auditor's Report (if applicable)
This is a report prepared by an external auditor (if the company is required to have one) that provides an opinion on whether the company's financial statements present a true and fair view of its financial position and performance in accordance with applicable accounting standards.
Statement of Changes in Equity (if applicable)
This statement shows changes in equity accounts (such as share capital, retained earnings) over the reporting period, including the effects of transactions with shareholders and other entities.
FRS 105 – Micro Entities
FRS (Financial Reporting Standard) 105 provides a simplified accounting framework tailored to the needs of micro-entities, allowing them to fulfil their financial reporting obligations with reduced complexity and cost.
In general, a micro-entity is a company that meets two or more of the following criteria:
Turnover not exceeding £632,000.
Balance sheet total not exceeding £316,000.
Average number of employees not exceeding 10.
Micro-entities preparing financial statements under FRS 105 are typically required to produce a simplified balance sheet and a simplified profit and loss account. These statements are often much shorter and less detailed compared to those prepared under other accounting standards.
FRS 105 provides exemptions from certain disclosure requirements that apply to larger entities. This includes reduced requirements for disclosures related to financial instruments, related party transactions, and certain other areas.
FRS 102a – Small Entities
FRS (Financial Reporting Standard) 102a is a financial reporting standard designed for small entities in the UK.
This is defined as companies that meet at least two of the following criteria:
Turnover not exceeding £10.2 million.
Balance sheet total not exceeding £5.1 million.
Average number of employees not exceeding 50.
FRS 102a allows small entities to prepare simplified financial statements compared to larger entities. The standard typically requires a balance sheet, a profit and loss account, and notes to the financial statements.
FRS 102a also includes reduced disclosure requirements compared to other accounting standards such as full FRS 102.
Companies House
Once the limited company accounts are complete and approved by the directors they are published at Companies House.
Depending on the size of the company, not all information included in the limited company accounts is available publicly. For example, micro entities publish abridged accounts that do not include a profit and loss statement and features a simplified balance sheet.