I run a very small company and, being figure minded, I do the accounts myself on spreadsheets, submitting Abbreviated Financial statements to Co. Hse.
I have no problem recording income and expenditure or doing a trading account and profit and loss account. I did accounts training in the 80s and didn't like doing balance sheets even then.
At the end of the first year trading I checked with an accountant to make sure I'd done things correctly. He made a couple of minor adjustments and I duly submitted to Co Hse and to HMRC.
Through changed domestic circumstances since the company started and no time or energy to apply to the business, the business made a loss of £2708 in the first year and £834 in the second year. I expect it to make a small loss in the third year but then start making a profit.
I needed to submit the second year Financial Statements to Co Hse last week and did so using the HMRC's combined uploading facility.
I hit a snag in how to show things. With no time to check with anybody (slap on wrist for leaving things to the last minute) this is what I submitted: (prev year's figures in red)
Current Assets
Debtors £75 £75
Cash at bank and in hand £25 £125
Total Current assets £100 £200
Creditors
Amount falling due within one year (£834) £2808
Amount falling due within five years (£2608) 0
Net Current Liabilities (£3342) (£2608)
Capital and Reserves
Called up share capital £100 £100
Opening capital (£2608)
Profit and Loss Account (£834) (£2708)
Shareholders' Funds(£3342) (£2608)
My problem was in not knowing whether I was right in bringing forward the first year's closing balance of £2608 and naming it as Opening Capital for the second year.
Note: there are no capital items or assets in the business as I use all my own equipment.
Sorry, but as you've stated yourself, that really does seem to be a pretty messed up balance sheet.
the core thing to remember is the accounting equation in that Capital must equal assets minus liabilities (or you could write it as Assets equals Capital plus liabilities which is the way that it would be presented on a balance sheet).
Therefore, if Assets equal £100 then equity + Liabilities must equal £100.
Assuming that you have correctly calulated share capital, short and long term debtors then your retained earnings figure needs to add up to -3442 in order to balance.
If your retained earnings brought forwards were -2708 then this year you must have made a further loss of 734, not 834 as stated.
Of course, there's an awful lot of assumptions in my review of your figures which I don't have access to the source of.
I think that you need to take a look at your figures to determine why your figures are not balancing.
Confirm all of the figures that you state in your question then attempt to resolve the P&L issue where the figure that you are getting for retained earning either this year or perhaps brought forwards is not the figure that you need.
kind regards,
Shaun.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Would have to disagree and say that the layout of Pru's balance sheet is correct rather than yours.
The top half of the balance sheet should show net assets which is fixed assets plus current assets less current liabilities less LT liabilities.
The bottom half of the balance sheet should show the capital and reserves only.
Agree with you the that the balance sheet is £100 out somewhere as the opening capital should be (£2708) rather than (£2608) so the profit and loss reserve in the current year should be (£3442).
which is an example for iXBRL purposes suppied by the IASB.
I stand by my first, very simplified statement of financial position / balance sheet which is the way that I always produce balance sheets.
I do however appreciate that without dictated format others may show their balance sheets in a different sequence.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I'm curious as to why your own equipment was not introduced to the business as fixed assets.
Obviously, you should check your opening balances as I can't help being drawn to the difference of that very amount in the opening and closing Cash at bank and in hand.
A good natured 'well done' for starting a controversy on your first posting
kind regards,
Tim
-- Edited by Don Tax on Thursday 5th of January 2012 10:27:26 AM
It wasn't controversial 'til you labelled it, big wooden spoon for Tim lol. But i was wondering the exact same thing as Tim as to why equipment wasn't introduced as fixed assets unless it's that good ole stapler again.
Need to disagree but just going by 15 years in practice have never seen accounts laid out like yours.
Surely the format is as prescribed by Companies Act or by companies house?
Regards
Mark
Hi Mark,
as quoted in my original reply. Refer to the IASB format in the link for an example of what I would expect a balance sheet to look like.
Also from my original note please note that there is no specified exact format but rather elements that must exist in the balance sheet, either on the face of or in the notes.
Many software packages will indeed produce a balance sheet in the sequence that you stated.
Others don't.
Placement of the previous years figures is also not set in stone provided that they are actually shown.
This is a situation where we can both disagree with each other and we're both right.
kind regards,
Shaun.
P.S. Just for info, don't be fooled by my ACCA student status. I've been completing and reviewing accounts for a lot more than 15 years but such is I feel immaterial as this is a business where things are always changing and we are always learning.
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Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Lol Neil. Me? as if. Don't take any notice of me Pru; we're a friendly bunch and don't fall out even when disagreeing.
See directly above for exhibit A.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Thank you for your prompt reply. However, I don't see any where that I described it as a pretty messed up balance sheet.
I must say that, though I said that comments and suggestions would be appreciated, I was somewhat surprised by your opening comment to my first post.
As an intro to my question, I stated that I am figure minded. Perhaps i should clarify that remark.
I have been working with figures since 1971, beginning in what was then cost and works accountancy. I stayed in management accounts for much of my working life, combining it since 1986 with administrative management and estate and facilites management. I have been treasurer of several small charities and chair of the finance committee of a medium sized charity.
I have many years experience of presenting financial and business reports and this is the first time I have been accused of presenting something which was 'messed up'. Still, as 'they' say, there is a first time for everything.
My roles have rarely required me to produce a balance sheet and I freely admitted that I did not like doing them back in accounting studies. Hence my appeal for help.
For the record, the layout which I used is that which HMRC uses on its Company Tax and Accounts Return Service Version 2.3.0, which evidently meets both HMRC and Co. Hse requirements as it is a joint service.
It seems you are unfamiliar with it so I set it out in full below:
Fixed Assets
Intangible Assets
Tangible Assets
Total fixed Assets
Current assets
Stocks
Debtors
Cash at bank and in hand
Total Current Assets
Creditors: amounts falling due within one year
Net current assets (liabilities)
Total Assets less current liabilities
Creditors amounts falling due after one year
Provision for liabilites
Total net assets (liabilities)
Capital and Reserves
Called up share capital
Revaluation reserve
Profit and Loss Account
Total shareholders funds
Excuse me if I now proceed to reply those others who kindly responded to my appeal for help.
"It seems you are unfamiliar with it so I set it out in full below"...
Bit cheeky don't you think considering I took the time to take appart your balance sheet and give you the answer that you need to chase down (the £100 out between your assets and your equity/liabilities).
My balance sheet was actually showing you in an easy to understand form where you had gone wrong rather than filling in an HMRC form.
Anyway, I bow to your obviously far superior knowledge of the formating of a balance sheet than myself. (What a waste all these years of study have been).
I've given the link to the example IASB (International Accounting Standards Board) statement of financial position.
There's constructive discussion above between Mark and myself about there being more than one acceptable presentation approach.
You have the HMRC format balance sheet above that you seem quite happy with.
Don't really feel that there's much else that I can do for you.
Good luck with finding that £100 in order to balance your statement of financial position.
Shaun.
-- Edited by Shamus on Friday 6th of January 2012 08:06:47 AM
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Thank you for your prompt reply. However, I don't see any where that I described it as a pretty messed up balance sheet.
You didn't have to Pru, we can see that it is.
However to answer your question - No the previous years P&L account isn't classed as opening capital in year 2. As you're operating a limited company the Capital account is the value of the shares £100 and doesn't change until you issue more shares. Add to this figure the Reserves which is the cumulative p&l account. As shown by Shaun in the Equities & Liability section.
If you refer back to HMRC balance sheet you quoted, you can see how the Capital & Reserves should be made up.
I don't follow why the Creditors due within 1 year has been changed to 5 years in the second year but the figures you quoted has dropped by £200 yet the cash in hand has moved by £100. This could be where the error is.
Finally. I don't know if your ego has been bruised but in defence of Shaun, he's nothing less than helpful and was only trying to help you get to grips with the logic that underpins a balance sheet. Something which by your own admission "you didn't like doing" back in the 8ts.
hth.
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Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
Unfortunately it took me a while to look at the specific points you raised, partly because I got put off from ever wanting to look at a balance sheet again.
Tony said: "Finally. I don't know if your ego has been bruised..."
Well, of course. I'm human and nobody likes their work to be rubbished, particularly in public. However, I am no shrinking violet and well used to standing my corner in debate on matters which I've put forward.
However....
Before I joined this forum, I checked out various threads and posts. It seemed that people were interested in helping those of us who find all or some of the accounting aspects of running a company difficult.
So, when I rather nervously put forward my own question, I expected to be treated with courtesy at least. I definitely did not expect to be criticised in such terms.
I am a member of a number of forums and lists and on one of them, there is a member who is very aggressive and downright rude to newbies, frequently rubbishing their perfectly reasonable requests for help. I hate it and cringe everytime it happens. So, I thought that in Shaun, this was another such person and reacted accordingly.
But.... says she eating humble pie....
Evidently, on the actual submission I used HMRC's format but, literally just this moment, I have realised that what I typed up on my question was my original hand written notes, in which I did use the expression Opening Capital and I didn't complete typing it up.
Apologies for mis-leading everyone with the way I typed up my original question. It is so annoying that I didn't type it up from the right info and frankly, I think I deserve Shaun to have rubbished what I put, (though I still think he could have been a bit nicer in how he did so.)
Could we start again please?
This is what I actually entered on the HMRC form and which will have been forwarded to Co Hse as the Abbreviated Balance Sheet:
(year one figs in red)
Total fixed assets 0 0
Current assets
Debtors 75 75
Cash etc 25 125
Total current assets 100 200
Creditors - one year 834 2808
Net current liabilities (734) (2608)
Total Assets less current liabilities (734) (2608)
Creditors - more than one year 2608 0
Total net liabilities (3342) (2608)
Called up share capital 100 100
Profit and Loss Account (3442) 2708
Total shareholders funds (3342) (2608)
So, you can see, as far as I am concerned it does balance, but perhaps not in the most correct way.
Does it make any more sense now?
And, is it right or wrong?
The creditors are simply me and my fellow shareholder. I made the £834 due within one year and moved the £2608 to more than one year simply because I thought it more achievable, especially since I'm predicting a loss for the third year of trading but hopefully then a profit.
There are no fixed assets in the business because I already had a fully equipped home office (including desk top computer and monitor, A4 printer and scanner and A3 printer) at the time I started the company.
Since then I bought a laptop and a second monitor (which is sooo useful).
I considered the matter and decided that as my working hours are very erratic, often considerably more than 9-5, monday to friday, it would be impossible for me to apportion the use of all my equipment between business and other use, so I decided to keep it as my personal equipment, with the business, as yet, uncharged for use of it.
Thank you all for your patience and... apologies to Shaun.
No probs. Arguements happen even amongst the most well meaning of individuals at times. Sorry that we got off to such a bad start. All water under the bridge now.
For a while we had a Friday afternoon quiz on here until one week quite embarrassingly I transposed some of the figures so I know that copying figures down incorrectly is very easily done.
Right, back to the balance sheet.
The £2708 brought forwards needs to be in brackets to show that it's a negative number but that aside the balance sheet is looking a lot better now.
Movement from negative £2708 to negative £3442 in retained earnings (referred to in your B/S as P&L) reflects a current year loss of £734. Is that the figure that you have in your P&L? If so then things are tieing up nicely
My concern really is what the figures represent.
Can you confirm the following :
1) P&L shows a loss of £734.
2) The Current and non current liabilities are a true representations of your underlying current and long term liabilities and not adjusted in any way in order to ensure that the balance sheet balances.
It's difficult to state categorically whether the B/S is correct without knowing how the figures that it is built from were derived but it's a big step forwards and I can say that there is on the evidence that we have no reason for me to believe that the information presented is not correct.
I appreciate that sounds like a negative assurance statement but in this instance I'm not actually giving any assurance due to my lack of primary evidence.
I do however agree that the presentation now seems to me to be ok but I'm sure that one or two others may spot something that I have not (espechially at this time of night).
I include below the simplified balance sheets in both the IASB format and the HMRC format that you've been working to. Both say exactly the same thing presented in the two different ways discussed above.
Sure that we're getting somewhere now but I don't think that this is quite put to bed yet as I can't get away from the feeling that we're trying to give advice from a position of very little knowledge as to how the figures were derived.
Your formatting and content do however seem to be presented internally consistently in a form that I am able to understand quite easily.
Hope that your faith in the help that you get from the site has been restored a little after we got off to such a rocky start.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I'd look at two other things in addition to Shaun's comments:
Yr1 current liabilities are £(2808) and Yr1 Cash is £125. But Yr2 the same figures are £(2608) and £25. Is this correct? If it's not a typo of some sort it implies that it's £100 out. It looks like £100 was taken from the bank and paid off £200 worth of creditors?
If you and your fellow shareholder are also Directors, I would classify the £2608 as a Current Liability, unless there's a formal agreement for the debts to be repaid after a year. The logic being that the debt is repayable when the company is in a position to do so.
Imho, Long term liabilities should be used when there's a formal agreement that this is the case e.g. a 10yr bank loan.
hth
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Tony
Responses are intended as outline only. Formal advice should be sort from your Institutes Technical Department or a suitably qualified Accountant.
Thanks for your message yesterday which I think was the catalyst for resolving the issue.
knew that it was a mistake me trying to rush an answer last night. I should have picked up on the transfer from short to long term liabilities. Certainly not something that I would let casually past if it hit my desk.
Pru,
just expanding on Tony's excellent point about your transfer from current to long term liabilities.
If the debt is payable on demand it's not long term even if it's not expected to be paid until after more than 12 months. Tony's hit the nail on the head when he states that long term debt is for things such as defined term loans, bonds, etc.
The reason that the financial reporting standards are quite picky on classification of assets and liabilities is that it's easy to manipulate key ratio's such as gearing and Return on Capital Employed by moving the values around.
The following definition of what constitutes a current liability is taken from IAS1 Presentation of Financial Statements.
An entity shall classify a liability as current when: (a) it expects to settle the liability in its normal operating cycle; (b) it holds the liability primarily for the purpose of trading; (c) the liability is due to be settled within twelve months after the reporting period; or (d) it does not have an unconditional right to defer settlement of the liability for at least twelve months after the reporting period
The key there is unconditional right.
If this is an overdraft rather than a loan then the bank has the right to call in the debt without notice at any time making it a current liability even where such is expected to still exist in twelve months time.
For more information on this refer to paragraphs 69 to 76 of IAS1, presentation of financial statements.
Kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Breathing a sigh of relief here that things aren't as bad as I'd convinced my self they were after I'd clicked submit on HMRC website. I hate being out of my comfort zone.
Shaun, I'm glad you did rush a reply last night cause i went to bed feeling a whole lot happier after reading it.
So, background to figures:
£75 is showing as debtors as the balance of the share capital due.
£25 of the share capital has been paid over and shows as cash held.
(thus totalling £100 called up share capital)
The additional £100 showing as cash held for the first year was for a client for whom I had not yet completed the job and therefore the money needed to be held in case it needed repaying.
Therefore, in calculating the P&L for the first year, it was treated as a year end creditor and the income adjusted accordingly, meaning £0 income for that year.
The Loss for that year, being purely expenses funded by the shareholders out of our pockets, = £2708.
Likewise, in the second year, with outstanding work from the first year completed and all subsequent work completed, there were no year end creditors. Income less cost of sales, less expenses = Loss of £834.
Hmmm. This appears not to be what you are expecting.
Stop. Think.
Click. Light bulb moment.
I adjusted year 1 by year end creditor.
I didn't reverse it for year 2.
I have £100 income unaccounted for.
Result: The Total Net Liabilities are overstated by £100 and the balance really is (3242).
How elementary! Sheesh!
I've been doing journals for years. Don't need to be doing a balance sheet to know what to do.
That comes of doing things at the last minute in panic mode.
And not stopping to look at last year's notes and reconciliations where I would have seen it.
I thought about it, decided I didn't need to do so and so.......
Now I AM officially rubbish.
If you're wondering why this didn't reconcile with the bank (and I've done massive bank reconciliations for years) it is because Santander kindly decided that due to lack of activity on the business account, they were closing it. They would only keep it open if we guaranteed a minimum usage, which we couldn't do unless we had enough customers to ensure a minimum of 62 hours paid work a week, 52 weeks a year.
Their decision threw everything into disarray, at a time when life was already in disarray, hence record keeping not up to usual standard.
Right, where were we?
The rest of the figures on the submitted balance sheet stem from those above.
Nothing has been adjusted to make sure it balances.
From what you both say, no, it is not long term debt. It is purely money which I and my fellow shareholder have paid out of our pockets, and we would like it back sometime, plus profit.
I can see your point about gearing etc,and that it should be classed as current liabilities.
Does that answer all your queries?
Have I got it right now or am I still missing something?
Now, I assume that for £100 difference, I don't have to submit fresh accounts to HMRC and Co Hse but can make an adjustment in the next year's account.
How do I do that?
Year end is 31 March. I expect to submit the accounts within a few weeks after that date.
The moral of the story is: don't start an internet based business less than three months before your stepmother dies, and whose death and last will and testament proceeds to throws a spanner into life, just when you're designing the website.
This and other factors means that the website is still not finished and the work we've had is by personal recommendation. Nice but not enough.
I am 60% shareholder, company sec.
DM is 40% shareholder and sole director.
He provides me with an inhouse IT dept : )
I am MEANT to provide him with a finance dept : /
Part of my worry has been that, if I get it wrong or miss deadlines, I'm okay but as director he is the one who gets fined.
We are both unpaid, as HMRC knows. Hopefully there will be enough income to declare a dividend some time.
I love my work and it would be nice to get the business fully up and running now.
