The accounting needs of your business will vary according to its size, type and sector. There are 2 types of accounting information - financial accounts and management accounts.
Financial accounts are a historical record of your business' performance over a period - usually one year. These accounts are shared externally and need to meet accounting and auditing standards. These accounts are for the benefit of external users such as shareholders, employees, suppliers, bankers and authorities.
Financial accounts normally include:
- profit and loss account
- balance sheet
- cash flow statement
- statement of recognised gains and losses
- unincorporated businesses
- notes to financial statements - which give more detail on individual items
Limited companies must prepare a set of financial accounts each year and file a copy with Companies House. There are statutory penalties for late or incorrect filing, for which the directors are liable. Small and medium-sized companies are allowed to file accounts with certain information omitted.
You should go to GOV.UK to find out out what you need to file.
Management accounts will help you to plan your business and make decisions about key areas such as sales, margins and stock. Different businesses will have different management accounting needs, depending on the business areas that are important to them. These can include:
- the sales process - such as pricing, distribution and debtors
- the purchasing process - such as stock records and creditors
- a fixed asset register - details of all fixed assets, including identification numbers, cost and date of purchase, etc
- employee records
There's no legal requirement to prepare management accounts, but it is hard to run a business effectively without them. Most businesses produce them either monthly or quarterly. They will include information to help them run their business.
While they're used internally, it's possible that others might want to see them - for example if you wanted a loan from a bank.
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