Checking Our Annual Accounts
This should help you check our Annual Accounts supplied by the Accountant.
It might be worth reading 3CA’s blog post, “Why are my accounts different from my accountants’ accounts?”, to understand why there might be some differences between our accounts in FreeAgent and those that our accountant sends over.
Each heading below should correspond to a section in the Annual Accounts that our Accountant sends us. The headings below should give you a good idea of what you need to check and where to find the various figures that are used in the accounts.
Company information
Ensure the following are all correct:
- List of Directors
- Our registered office address
- Our bank address
- Our accountants address
Directors’ Report
- Ensure the list of directors includes everyone that was director during the company year.
- Ensure that all joining and leaving dates are correct.
Chartered Accountants’ Report to the Board of Directors on the Preparation of the Unaudited Statutory Accounts
I don’t think there’s anything we need to check in this section, but it’s probably worth reading through it to ensure that it all looks reasonable.
Profit and Loss Account for the Year
This report should look pretty similar to FreeAgent’s Profit and Loss report (FA P+L) for the same period.
Each section is detailed below so that you can manually check the figures against FreeAgent. Alternatively, you could create a spreadsheet based on FreeAgent’s Trial Balance data that allows you compare the figures more accurately. See the spreadsheet for 2014/15 for an example of how this is possible.
Turnover
- Should equal “Turnover” in FA P+L.
Cost of sales
- Should roughly equal “Cost of Sales” in FA P+L.
- Differences can probably be accounted for by things being categorised as “Administration Expenses” in FA and “Cost of sales” in the Annual accounts.
- You can see a more detail break down of this figure in the “Detailed Profit and Loss Account” supplied with Annual accounts.
Gross Profit
- Should roughly equal “Turnover” - “Cost of Sales” in FA P+L.
- Differences can probably be accounted for by things being categorised as “Administration Expenses” in FA and “Cost of sales” in the Annual accounts.
Administrative expenses
- Should roughly equal “Administration Expenses” + “Staff Costs” + “Tax-Disallowable Admin Expenses” in FA P+L.
- Differences can probably be accounted for by things being categorised as “Administration Expenses” in FA and “Cost of sales” in the Annual accounts.
Operating profit
- Should roughly equal “Operating Profit” - “Other Income” in FA P+L.
- Differences can probably be accounted for by things being categorised as “Administration Expenses” in FA and “Cost of sales” in the Annual accounts.
Other interest receivable and similar income
- Should equal “Other Income” in FA P+L.
Profit on ordinary activities before taxation
- Should equal “Operating Profit” in FA P+L.
Tax on profit on ordinary activities
- Should be roughly 20% (Corporation tax rate) of “Profit on ordinary activities before taxation”.
Profit for the financial year
- Should roughly equal “Operating Profit” - “Corporation Tax Liability” in FA P+L.
Balance Sheet
This report should look pretty similar to FreeAgent’s Balance Sheet report (FA Balance Sheet) for the same period.
Each section is detailed below so that you can manually check the figures against FreeAgent. Alternatively, you could create a spreadsheet based on FreeAgent’s Trial Balance data that allows you compare the figures more accurately. See the spreadsheet for 2014/15 for an example of how this is possible.
Current assets
Debtors
- Should roughly equal “Prepayments” + “Trade Debtors” + “Director loan accounts” under “Current Assets” on FA Balance Sheet
Cash at bank and in hand
- Should roughly equal “Bank Account HSBC Current” and “BMM” accounts under “Current Assets” on FA Balance Sheet
Creditors: Amounts falling due within one year
- Should roughly equal “Current Liabilities” on FA FA Balance Sheet.
- Differences can probably be accounted for by a slightly different Corporation Tax figure calculated in the Annual accounts.
Net assets
- Should roughly equal “Net Current Assets” (and “Total Assets”) on FA Balance Sheet.
- Differences can probably be accounted for by a slightly different Corporation Tax figure calculated in the Annual accounts.
Capital and reserves
Called up share capital
- Should equal the sum of the “Capital Accounts” listed under “Owner’s Equity” on the FA Balance Sheet.
Profit and loss account
- Should roughly equal the “Retained Profit” listed under “Owner’s Equity” on the FA Balance Sheet.
Shareholders’ funds
- Should roughly equal the “Total Owner’s Equity” on the FA Balance Sheet.
Notes to the Financial Statements for the Year
1. Accounting policies
- I don’t think we need to do anything about this section. Simply read it and make sure there’s nothing odd in what’s written. You should compare it to the same section in the previous years to ensure that it’s either identical or very similar.
2. Operating profit
- This is left intentionally blank. Stuart explains, “Company law dictates the format of this statement. We are not allowed to change it. The detail is in the last few pages - the non-statutory ones.”
3. Directors’ remuneration
- I believe this should be equal to a combination of the “Directors’ salaries” listed under “Staff Costs” in the FA P+L, and our pension contributions.
- In 2014/15 I was able to arrive at the figures using FreeAgent’s Trial Balance data.
- Ensure the number listed against “During the year the number of directors who were receiving benefits and share incentives was as follows” is correct.
4. Taxation
- The “UK Corporation tax” should roughly equal the “Corporation Tax Liability” in the FA P+L.
- Differences can probably be accounted for by the different allocation of costs as explained in Step 4 > Cost of Sales.
5. Debtors
- “Trade debtors” should equal “Trade Debtors” listed under “Current Assets” on the FA Balance Sheet.
- “Other debtors” should equal “Prepayments” + the sum of the “Director loan accounts” listed under “Current Assets” on the FA Balance Sheet.
- In 2014/15 I was able to arrive at the figures using FreeAgent’s Trial Balance data.
6. Creditors: Amounts falling due within one year
- “Corporation tax” should equal “UK Corporation tax” from “4. Taxation” above.
- “Other taxes and social security” should equal “VAT” + “Deferred VAT” listed under “Current Liabilities” on the FA Balance Sheet.
- “Other creditors” should equal “Accruals” listed under “Current Liabilities” on the FA Balance Sheet.
- In 2014/15 I was able to arrive at the figures using FreeAgent’s Trial Balance data.
- In 2014/15 this section included a line item for “Other taxes and social security”. I’m not sure why this wasn’t present in our 2013/14 accounts.
7. Share capital
- We should have 3000 shares valued at £0.10 each, giving a total of £300.
8. Dividends
- “Current year interim dividend paid” should equal “Dividends Paid” on the FA P+L.
- In 2014/15 I was able to arrive at the figures using FreeAgent’s Trial Balance data.
9. Reserves
- “At 1 February” should roughly equal “Retained Profit brought forward” on the FA P+L.
- “Profit for the year” should equal “Profit for the financial year” from “Step 4. Profit and Loss”.
- “Dividends” should equal “Current year interim dividend paid” from “8. Dividends” above.
- “At 31 January 2014” should roughly equal “Distributable Reserves / Retained Profit carried forward” on the FA P+L.
- In 2014/15 I was able to arrive at the figures using FreeAgent’s Trial Balance data.
10. Pensions
11. Commitments
- “Within two and five years” should equal our annual rent commitment (e.g. £21,432 in 2013/14 as we were paying £5358/month).
- There was no commitment in 2014/15 which is what I expected given that we no longer had the lease on 87 Worship Street.
12. Related party transactions
Directors’ advances and credits
- Each director should have their director loans listed to match the “Director Loan Accounts” under “Current Assets” on the FA Balance Sheet.
- NOTE. This only contains the directors at company year end. Directors that resigned during the year won’t be listed.
Other related party transactions
- The amount of dividends paid should equal the sum of the 12 Dividends listed under “My Money > Dividends” in FreeAgent for the company year.
- NOTE. The company year isn’t the same as the payroll year so you’ll probably have two dividends from the previous accounting period, and ten from the accounting period that matches the company year in question.
12. Control
- I think this should simply state that “The company is controlled by the directors who own 100% of the called up share capital.”