By Ashley Preen
January 21, 2020
The annual accounts, consist of the following: balance sheet, profit and loss account, the statement of changes in equity for the year, the cash flow statement, and memory. It is a single document that must be written clearly and according to the regulations established in the commercial code, the companies law, and the general accounting plan.
The purpose of these annual accounts will not be other than to show the authentic image of the company’s assets, its financial situation, and the results obtained through legal provisions. Hence, operational accounting is based only on economic reality and not the legal form.
Stating only the basics is never ideal because no company does not grow further. And, if you are running a legitimate business, then you must fulfil these requirements and not make mistakes here.
All the information you include in your annual accounts must be correct and verified. Because, of course, a falsification is an option. However, the first one you will be cheating will be yourself, and, if your reliability is not 100% assured, you may end up with serious problems.
These accounts serve, above all, so that you have a panoramic view of the economic status of your company. Useful annual reports are those rich in details in which there are no gaps or omissions.
Adding complexity to your accounts to blur their results will only end up leading to a messy situation. So, when addressing your accounts, be as transparent as possible and strive to eliminate any expendable complications. Do not leave room for doubt.
Now that the necessary details of your annual accounts are more than evident, it’s time to address what exactly they have to include. Let us make clear from the beginning that there are five points that every annual account should contemplate.
It is usually the first document that opens all annual accounts. It expresses not only the assets and liabilities of the company but also its net worth.
The economic benefits generated by the business must segment according to exploitation, finances, and operations carried out. The idea is that the income statement is a kind of in-depth balance.
Every company has to reflect its equity status in this section. Its usually generically and will be more productive, the more information it includes.
The liquidity of the business is evident in this slice of the annual accounts. It informs about the monetary changes that have already appeared on the balance sheet. Its purpose is to clarify any cash movement.
The closure of annual accounts report is the ideal place to explain any financial statement of a company that there has not been a remark of in the previous sections. Understand it as a compliment as a conclusion.
The most common problem in the annual accounts is usually the appearance of a change in criteria once they shutdown. The only possible way to solve this is to readjust all accounts based on the new rules. (This is also applicable if you have found some accounting error.)
It may also be the case that the change is not a criterion, but an accounting estimate. Things are complicated here because this type of evolution implies that it should be applied not only to the current year but also to the relevant net worth item.
Finally, there is a possibility of operations put through after the closing of the annual accounts. If they are predictable transactions, you should already include them in your annual reports. But if they have been impossible to predict, you can solve them by adding them directly in the memory.
First of all, we must be aware that we are going to be showing all the keys to the company. Of course, it must carry reliable information. That you must take into account that many individuals play with the data to make up the documents before the partners. Hence meeting the standards of reliability becomes doubly significant.
Such documents are critical for decision-making within the company because depending on the data and the strategy shown, the future will go on one side or the other. Hence it is essential to display vital information without any distortions.
As we mentioned in the previous point, the annual accounts of the company must include all the vital information. Similarly, it would best if you put everything that should be inside without making selections of data that can affect the statements.
The idea of the company’s annual accounts is that they can be easily interpreted by each other, so there is no place to complicate reading to hide something. Remember, first of all; clarity means sincerity.
It merely refers to a compilation of general details regarding an enterprise’s directors, departments, registered address, shared capital, and shareholders. Often, companies are required to complete this information by hiring a secretary or two because “secretary” is included in the list of annual returns. Every year, companies in the UK are supposed to file annual returns to the HMRC.
In the UK, the normal practise for companies is to file their annual returns to the Companies House 28 days after it has been up to date. Members of the company accept this responsibility, and usually, it is the part of the director’s job to file an annual return after making updates to it each year. Here are some essential points regarding yearly returns in the UK:
The annual return must contain the following information:
In case if the company happens to have a share capital, then the annual return must also comprise the following:
In many business cases, there is also information regarding undertakings, which they must add as subject information to the annual return.
That is the date by which every piece of information regarding an annual return must be up to date. The updated date emerges a year after the company’s incorporation or the last time by which the company files the annual return at the Companies House.
You should note that annual returns should be filed to the Companies Hosue within 28 days after the date of the update written on the form. One must not forget that you must pay the document-processing yearly fee when a company’s director is filing the annual return.
Keep the following things in mind.
You must fill the annual return to notify the Companies House about the following details:
This information applies to every business that has a share capital. If the company has converted its shares into stocks, the directors will need to provide information regarding the corresponding stock. It should contain the amount of stock instead of the minimal value of the shares.
Companies that have a share capital must provide the following information regarding each value of the share:
The total minimum share values are the entire minimum or face value of shares, which, of course, excludes premiums.
Many companies tend to confuse both of the documents. It would help if you kept in mind that both materials are quite different from each other, even though business directors are required to file them to the Companies House. The annual returns reveal critical information regarding your company and its necessary credentials. Whereas, the annual accounts contain all kinds of information regarding how well your company is performing.
If anyone is confused, they should think of annual returns as information that reveals surface-level details on a company. Yearly accounts are nothing like that. They are purely financial. Both are related to each other, in a sense. When HMRC and Companies House have to make judgments about your company or have to assess your business situation, they will take into account the information provided in the company’s annual reports as well as limited company yearly returns. These federal bodies want to understand and know information regarding your company, and this is your best shot to make an impression.
That is all you need to know regarding both concepts of accounting: annual returns and annual accounts. Company directors must develop their understanding regarding these two concepts so that they can make the right decisions and be proactive in their business dealings. The HMRC and Companies House are very peculiar about the information contained in these documents.
A bit of crucial advice here would be that you do not make mistakes and do not fill in incorrect information regarding your business, as it may give the wrong impression about your company and may open a dispute.