What do the numbers in my accounts mean?

Every business is split into the following elements to enable you to balance your accounts and check on the profitability of your company:-

Balance Sheet

  • Assets – what you own (defined as an item of property owned by a person or company, regarded as having value and available to meet debts, commitments, or legacies.)
    • Fixed Assets                                     
    • Current Assets                                
  • Liabilities – what you owe (An obligation arising from a past business event, defined as a thing for which someone is responsible, especially an amount of money owed.)
    • Current Liabilities (short term)                                
    • Long Term Liabilities                    
  • Capital & Reserves                                                          

Profit & Loss Account

  • Income – A summary of your sales value from your revenue streams                                           
  • Cost of Goods Sold – those costs to the business that are related to your income. So the more your sell, these direct costs increase.
    • Purchases                                        
    • Direct Expenses                              
  • Overhead – other purchases and ongoing costs you have for the day to day running of the business.

Each element is then divided into separate sections and each of these is identified by a line in your accounts.

For example:

  • Fixed Assets – building, machinery, vehicles.                                   
  • Current Assets – bank balance, cash, debtors (money owed to you), stock,                                
  • Current Liabilities – tax owed, overdraft, loans, creditors (money you owe to people like suppliers)                                
  • Long Term Liabilities – long term loans like mortgages,                      
  • Capital & Reserves – share capital, Profit or loss,                         
  • Income – revenue, turnover, work completed, sales of assets, other income, interest,                                             
  • Purchases – materials, stock,                                         
  • Direct Expenses – labour, marketing, advertising,                         
  • Overheads – wages & salaries, premises costs, expenses, depreciation,                                       

For your internal management reporting, you can show your accounts in the format that you desire. However, for tax returns and accounts submission their are recognised formats governed by the financial reporting standards (FRS). Don’t worry you accountant will know!

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