Understanding company accounts is crucial if you have just started your own business or are already in a business. If you don’t have much financial knowledge, you might face difficulties understanding the financial terminologies of your company accounts. However, you must know these terminologies in order to understand where your company stands and how you can take it to the next level. In this manner, this blog will help you understand what are company accounts and how you can better assess your company’s financial position with the help of these accounts.
What are Company Accounts?
An overview of a company’s financial position over a year is company accounts. They consist of the Cash Flow Statement, Balance Sheet, and P& L (Profit and Loss) Statement, and every year they are prepared for HMRC and Companies House. Let’s explore the cash flow statement first.
Cash Flow Statement
A Cash Flow Statement is a type of company account used to show the cash incomings and cash outgoings of a business over a financial year. It is slightly different from the P&L statement because we record the cash flow when receiving money and profit when selling takes place.
Following are the three categories of cash flow statements.
- Financing activities – It includes the cash that has been spent on external financing.
- Operating activities – It includes the cash that is received by selling the company’s services and goods.
- Investing activities – It includes the cash that has been spent on capital expenditures.
The P&L statement is used to keep track of your company’s performance for a certain period. In addition to that, it allows you to see your company’s overall income and costs(expenses) throughout the year.
A balance sheet is a financial statement that provides a quick insight into your shareholder’s equity, business’s assets, and liabilities. It is used to show the financial position of your company when accounts are generated, comparing your assets and liabilities. The things owned by a company from which profit is generated are known as assets, and unlike assets, the things owed by a company (the debts of a company) are known as liabilities. Assets and liabilities have different types to be explained.
First, we will see the types of assets, which are:
- Fixed Assets – Long-term assets like factories, land, and vehicles come into fixed assets.
- Current Assets – These are the assets with a shorter life span ( such as petty cash, stock items and cash in the bank).
Now, we will see the types of liabilities, which are:
- Current liabilities -These are the liabilities that are due to be repaid within a time period of one year.
- Long-term liabilities -These are the liabilities that you can pay in a time frame of more than one year.
We hope now you have a better understanding of what are company accounts and how you can better assess your company’s financial position with the help of these accounts. So, whether you’re a business owner, an investor, or an entrepreneur, you’ll need a thorough understanding of company finances to help your business grow and succeed. You can, however, create and file your company’s financial statements on your own. If you don’t know enough about accounting and finance, then you should hire an accountant to get the optimal benefit.
Disclaimer: This blog contains general information about company accounts.