Hello everybody, hope your all enjoying the Easter break,
I am seeking some advice, and am hopeful someone will help me out. I understand how to produce a profit and loss account, but apart from the figures used to show how you arrived at the gross and net profit and obviously the accounting period and name of the individual / company, what other information would you advise to put on the P&L. If, for instance as a self-employed bookkeeper you were working from incomplete records and had to rely on the word of the client as to certain income and expenses, how would you note this so that anybody relying on the P&L for information would be aware of this? I think that I have heard mention of an approval statement for the P&L in the past. Does anybody include this as standard and are they common? Any advice would be gratefully appreciated.
the P&L and BS are just a couple of the bits in the full set of accounts which will also include the notes to the accounts, approval statement, accountants get out of jail free clause etc.
There are of course also short and full versions of the accounts and to be honest the short version (which is generally the one viewable by the public) is often to my mind next to useless as an abreviated balance sheet says virtually nothing about the company.
Lets just talk about the full version. All of the real detail is held in the notes and detail pages at the back of the accounts rather than on the short P&L.
The key is that the accounts are prepared by the accountant but approved by the directors / owners who are ultimately responsible for the content.
The accounts are not audited but prepared with appropriate professional skill and care based on the information available. The accountants page will say something along the lines of :
"You consider that the company is exempt from an audit for the year ended xxxxxxxxxxxxxx. You have acknowledged, on the balance sheet, your responsibilities for complying with the requirements of the Companies Act 2006 with respect to accounting records and the preparation of accounts. These responsibilities include preparing accounts that give a true and fair view of the state of affairs of the company at the end of the financial year and of its profit or loss for the financial year.
In accordance with your instructions, we have prepared the accounts which comprise the Profit and Loss Account, the Balance Sheet, the Statement of Total Recognised Gains and Losses and the related notes from the accounting records of the company and on the basis of information and explanations you have given to us.
We have not carried out an audit or any other review, and consequently we do not express any opinion on these accounts."
The short P&L again says very little with the real detail being in the notes and the detailed P&L at the back of the accounts.
Another thing worth noting is that accounts are not prepared for the general public but are prepared so that someone knowledgeable in accountancy should be able to ascertain the financial status of the entity from the information provided.
In answer to your last question. I think that everyone includes a version of the above quote in any accounts that they prepare.
HTH Rich,
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.
Thank you very much for the time you took to explain the reports etc. contained in a set of accounts. Is there somewhere I could go (website / text books etc.) to find examples of how these reports, notes and detail pages are laid out and presented to the client? At present I am targeting sole traders, but have started to pick up some enquiries and a little bit of work from limited companies. Although I am not qualified to complete year end accounts for companies (bookkeeping to trial balance only) I would really like to get an insight into how their accounts are prepared as this would improve my understanding of what potential clients may require from a bookkeeper.
My original question was prompted by a meeting I had with a potential client. In a nut shell, sole trader wanting a profit and loss drawn up as they wished to sell their business. Only had their own written records of the sales made by the business. (They were unaware that they needed to keep till receipts!) I said that I would put a note with the P&L that all sales figures were supplied by them and that they were legally obliged to provide records of sales if requested by HMRC (atmosphere then turned icy). Combined with other factors I had to tell them I did not want the job. Afterwards, I thought about the situation and how a potential buyer of the business could be misled. Decided I really should tighten up my procedures for this type of scenario.
Firstly, to see a set of accounts try a free one month trial of VT Accounts which comes with templates for LLP's, Self employed, limited companies, etc.
You need to have Excel on your machine as VT Accounts is an Excel add on (but I think that everyone in this business has Excel anyway).
To learn VT I used a set of accounts produced in Iris (via Sage) and then reinput all of the data in VT transaction+ and pushed that through to VT Accounts.
Took a bit of playing around with to get perfect as the opening balances proved a little problematic first time around (ended up deleting everything and started again as it started to feel like a Rubiks cube where you fix one thing and two others go wrong).
The VT manual is very good although a course and some test data would have been nice.
I think that seeing actual accoujnts like this is better than the cut down versions that you get in study texts which are often simply the P&L and BS (but if you want any pointers to good books that cover accounts prep without the additional requirements I can offer plenty of suggestions)
The second part of the post shines more light on the reasoning for needing to produce the P&L which is basically as input into a valuation available to a third party. That really is a hotbed for litigation both from a potential purchaser and their supplier of finance if such information proved to be misleading (the banks have huge in house legal departments on payroll for a reason).
It never fails to surprise me that clients believe that when they hire a professional to prepare the financial statements that they absolve themselves of their responsibility.
Considering the reasoning for the report, even including an exclusion clause I think that you did the right thing in walking away from this one Rich.
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.
Just to add, for my soletrader clients, I tweak the accountants statement (I also change the title to Accountancy Providers Report, as I never call myself an Accountant, or let people think that I am) to add that the accounts are compiled from incomplete records, and that they are for the use of the proprietor only, and not for distribution.
way too much chocolate yesterday and seem to be suffering still from the excesses today.
Hows life with you matey?
Its nice to see that we are getting more and more VT questions on the site. You may disagree with my reply to NA_AA but to my mind VT have it right and what she seems to want to do isn't right (Prepayments on the face of the balance sheet in the abreviated accounts).
Oops, but thats not what this thread is about.
talk in a bit, the sites on all of the time but I'm extending the home office to two offices so currently knee deep in cableing and box files.
Don't know how but it seems that I've increased the storage capacity but cannot now fit on the shelves the stuff that I took off half as many shelves yesterday!
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.
Just to add, for my soletrader clients, I tweak the accountants statement (I also change the title to Accountancy Providers Report, as I never call myself an Accountant, or let people think that I am) to add that the accounts are compiled from incomplete records, and that they are for the use of the proprietor only, and not for distribution.
Shaun. Must be the season for doing up the office. Just bought myself two new large desks, two large bookcases, I also decided to buy a 36 slot A4 postal sorting shelf to make sorting hundreds of invoices into date order easier. Decided I would develop a uniform (I know your views on booted & suited ). Just seems, if I am out and about a lot it lets others know who I am. Only ordered it all at the wekend, so the courier is going to give himself a hernier.
I have also invested in a 3Tb hard drive for my own personal cloud storage ( kept in my home office, accessible from any pc/ lap top/ smart phone, so i control the data). I have had that for a couple of week's now, and it is working great.
Only a few more shopping days left to reduce this years profits, what else can i buy?
well, if you've still got too much Bill money I'm available for consultancy work....
The two home offices are now fully functional and I am choosig not to look at the landing and hallway which still holds the overflow paper work... No idea how one can tax things out of one room, fill another and have enough left over to fill a third without the first room looking any emptier than it did before I started.
I'm sure that disturbed paperwork just replicates itself to fill up whatever space is available which is why we never have enough storage or deskspace.
I give you a week before your thinking "Well, I maybe should have gone for four bookkcases! (and maybe a couple of four drawer filing cainets)".
All the best,
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.
Less than a week. Already thinking at least one more bookshelf, and maybe two pedestal draw units for under the desks.
Know what you mean though, i am sure my old bookshelf were made by the same artisan that made the Tardis, as although the bookshelves are bigger, I have books left over???
). Just seems, if I am out and about a lot it lets others know who I am. Only ordered it all at the wekend, so the courier is going to give himself a hernier.
