HR Book Keeping

You Do The Business, While We Do The Books

Financial Accounts

Financial accounts are historical, usually for the previous year, for a period of 1 year.  If the business is a limited company, by law, the accounts have to be lodged at Companies House on a yearly basis.  They usually comprise of the Balance Sheet and the Profit & Loss (P & L). If the business is not a limited company the P & L is required for the owner’s personal self assessment.

The following are a description of the 2 main reports included in the financial accounts.

Profit and Loss Account

The Profit and Loss account, known as the P & L Account, is a historic picture of the business.  It is for the previous year, but is usually done monthly or quarterly and yearly and compares income to expenditure.  The profit & loss statement comprises sales, purchases, direct costs and overheads/expenses. 

Income is the payment received for the goods or services given to the customer by the business.  Expenditure is purchases and overheads. Purchases are the goods or services given to the business by the supplier, known as cost of sales, this should reflect the quantity that the business has sold. Overheads are services or goods which are required to enable the business to supply the goods or services, but which have to be paid regardless of the quantity of the goods services sold, i.e. electric, telephones, stationery.

Balance Sheet

The Balance Sheet is a snapshot of the assets & liabilities of the business at a specific time, usually on the last day of the financial year of the business. Assets are what are owned by the business or what is owed to the business. 

The elements that make up the assets are Current Assets, in the form of cash or goods that will be converted to cash within 1 year, i.e. stock or unpaid sales.  Fixed assets are assets of the business that won’t be converted to cash within one year, i.e. equipment. 

The elements that make up the Liabilities are Current Liabilities, in the form of cash and payable by the company, i.e. unpaid purchases or payments to HMRC for payroll. Long Term Liabilities are liabilities of the business that are not due to be paid within one year, i.e. long term loan or mortgage.