A Guide to Company Accounts

18 June 2012 DueDil Team

We often get asked by our users why some companies have more or less financial information than others. Although all private limited and public companies are required to file annual accounts to Companies House, the amount of information a business is obliged to include varies depending on a few criteria based on the size of the company. In the eyes of Companies House there are three sizes of companies – small, medium or large.

The thresholds that determine the size of a business are turnover, balance sheet total (meaning the total of the fixed and current assets) and the average number of employees. Any companies that do not fit into the small or medium categories are established as being large companies and will need to prepare and submit full accounts.

Small company

A small business files abbreviated accounts that include:

  • Abbreviated balance sheet
  • Special auditor’s report

To qualify as a small company at least two of the following conditions must be met:

  • Annual turnover £5.6 million or less
  • Balance sheet total £2.8 million or less
  • Average number of employees 50 or fewer

Medium Company

A medium business files abbreviated accounts that include:

  • Abbreviated profit & loss
  • Balance sheet
  • Special auditor’s report
  • Directors’ report
  • Notes to the account

To qualify as a medium company at least two of the following conditions must be met:

  • Annual turnover £22.8 million or less
  • Balance sheet total £11.4 million or less
  • Average number of employees 250 or fewer

Large company

A large business files full accounts that include:

  • Profit and loss account
  • Balance sheet
  • Auditor’s report
  • Directors’ report
  • Notes to the accounts
  • Group accounts

To qualify as a large company at least two of the following conditions must be met:

  • Annual turnover more than £22.8 million
  • Balance sheet total more than £11.4 million
  • Average number of employees more than 250

What is The Balance Sheet?

The balance sheet is a way of gauging how well a company is doing at the year end.
This is sometimes referred to as a ‘snap shot’.
It shows a company’s assists, along side their liabilities.
Total assists minus total liabilities equal the net assets of the company.
Current assets minus current liabilities equal net current assets, which shows the funds available to pay bills within the year.
Shareholders funds are made up by reserves and issued share capital. Total capital employed takes these into account, along with any minority interests.

What is the Profit and Loss Account?

The profit and loss account shows the profit or loss the business has made, as well as how they were reached, over the previous financial year.
It shows all revenue and expenses but cannot be considered a ‘snap shot’, like the balance sheet.
Total expenditure must be less than total revenues for a net profit to be made.

Small, medium and dormant companies may file abbreviated accounts, if they are eligible and wish to. Public companies, insurance, banking and shipping companies will never be exempt, regardless of their size.

There are also dormant companies. What is a dormant company? A dormant company does not trade and is determined to be dormant if it has no ‘significant accounting transactions’ during an accounting period. Dormant companies may be registered to hold a company name or for various other reasons. Dormant companies must still file annual accounts that include a balance sheet and any relevant notes to the accounts. Any transactions performed will mean filing full accounts to Companies House.

A company’s first accounts must be signed and delivered to Companies House:

  • within 21 months of the date of incorporation for private companies, or
  • within 18 months of the date of incorporation for public companies, or
  • 3 months from the accounting reference date, whichever is longer.

The deadline for this delivery is calculated to the exact day, and failure to meet this date will result in a civil penalty and late filing fee being issued against the company.

All accounts must include the following names and signatures:

  • the copy of the balance sheet must show the printed name of the director who signed it on behalf of the board and;
  • the copy of the balance sheet must be also signed by a director and;
  • the copy of the directors’ report must include the printed name of the director or company secretary who signed the report; and
  • if the company has to attach an auditor’s report to the accounts, the copy of the auditor’s report must state the auditor’s name.

I hope this helps explain why you will find different levels of financial information for companies on Duedil. In a future blog we’ll go into detail on all the financial terms found in company accounts. Are there any financial topics you would like us to write a guide on? If so please let us know in the comments section.