Company Profit and Loss Account
There are a number of slight differences in the format (and words used) of the accounts of companies compared to those used in relation to sole traders and partnerships. The Profit and Loss Account may also be referred to as ‘the Statement of Profit and Loss’ or ‘the Income Statement’).
- Instead of using the words ‘income’ or ‘sales’ to denote cash generated by the business, the word ‘revenue’ is commonly used in company accounts.
- Companies may show the expenses as a single line in the accounts or may split the expenses into categories.
- An entry for finance costs relates to interest payable by the company on funds borrowed and is included as an expense. This can be contrasted with a figure for interest receivable. This would be interest generated on money lent by the company and would be an income entry included in turnover in the top part of the Profit and Loss Account.
- An entry for taxation will be included, which will usually include taxation payable on company profits and does not include other employment or consumption taxes.
- The Profit for the year figure will be carried over to the Statement of Changes in Equity in the Balance Sheet.
Company Balance Sheet
number of differences in the Balance Sheet of a company compared with that of a sole trader or partnership can be observed.Note:
- An ‘Impairment of Receivables’ entry is the provision for doubtful debts, and this information would normally be shown in a supporting note, with only the updated ‘Receivables’ figure shown in the Balance Sheet.
- What was previously referred to as ‘current liabilities’ and ‘long term liabilities’, are referred to in company accounts as ‘Current Liabilities’ (such as overdrafts repayable on demand, trade payables, accruals and dividends declared but not yet paid) and ‘Non-current Liabilities’ (such as bank loans repayable in more than one year) respectively.
- In terms of the bottom portion of the Balance Sheet, there is no reference to capital contributions or drawings. Instead, the bottom portion of the Balance Sheet shows what is referred to as ‘Total Equity’ or ‘Equity and Reserves’ (these terms are interchangeable). As with all Balance Sheets, the Net Assets should always balance with the bottom portion of the Balance Sheet. This is because Net Assets represent the manner in which the Equity is being used by the company as at the date of the Balance Sheet.
- An item labelled ‘Retained Earnings (profit and loss carried forward)’ may appear on the Balance Sheet and should not be confused with the Profit for the Year shown on the Profit and Loss Account. The figure comes from a ‘Statement of Change in Equity’. This is because the correct figure for retained profit needs to be calculated before the balance sheet can be completed: it will include the profit from the current accounting year, together with all retained profits from previous years, net of dividends.
- The company Balance Sheet may also include reference to other ‘reserves’, known as ‘capital reserves’. These commonly include the Share Premium Account and Revaluation Reserve.