[Commerce Class Notes] on Basic Concepts Of Company Accounts Pdf for Exam

Introduction to Company Accounts

Company accounts are known as a summarization  of an organization’s financial activity which has been performed over a period of 12 month. They are prepared for Companies House and HM Revenue & Customs every year and consist of the Balance Sheet, the Profit and Loss Statement, and the Cash Flow Statement. (“Company Profit Sharing Accounts”) and any contributions made by an Employer under prior plans, as well as to any income and/or earnings attributable to such Company Contributions and prior plan contributions.

Basic Concept of Company Accounts for New Entrepreneurs & Purpose of Company Accounts:

Company accounts are a summary of an organization’s financial activity over 12 months. They are prepared for Companies House and HM Revenue & Customs every year and consist of the Balance Sheet, the Profit and Loss Statement, and the Cash Flow Statement.

Purpose of Company Accounts:

Company accounts are used to track the cash balance, money owed to the business, money owed to creditors, Excess, and access and the payroll paid to employees.

Company accounts are an analysis of an organization’s financial activity over a period (12 months). For showing the financial performance of a company, accounts are maintained and they are prepared in corporate accounting. 

It is a recording of the issue of shares, debentures, etc. of the company. Other routine accounts of the company are also recorded. With all these details, every year the company prepares accounts consisting of the Cash Flow Statement, the Profit and Loss Statement, and Balance Sheet. 

 

Company Accounts- Issue of Shares

The issue of shares is a process in which a company allocates new shares to the public. The company issues prospectus, receives applications and then allocates them to the public. Shares are issued either at par or a premium or a discount.  If the shares of a company are issued at a price more than the face value of the shares, the excess amount is called the premium. If the shares are issued at a price less than the face value of the share, it is called shares issued at a discount. The image below gives a clear idea of the issue of shares.

 

Company Accounts- Accounting for Share Capital

A company cannot generate its capital, which has to be necessarily collected from several persons. The persons who contributed the amount are the shareholders and the amount thus collected is the share capital of the company. The capital amount collected is kept in a “Share Capital Account”.

 

From the point of accounting, the share capital of the company is classified as (1) Authorized Capital, (2) Issued Capital, (3) Subscribed Capital, (4) Called up Capital, (5) Paid-up Capital,  (6) uncalled capital, and (7) Reserve Capital.

 

The issue of ordinary shares is accounted for by allocating the proceeds under (1) Share Capital Account and (2) Share Premium Account. All the money received along with the application is deposited with a scheduled bank in a separate account as above opened for the purpose.

 

Company Accounts– Notes

Company accounts are a consolidation of a company’s financial activities for one year. It consists of the Cash Flow Statement, Balance Sheet, and Profit & Loss Account. 

 

The Cash Flow Statement reveals the movement of cash in and out of the business over the financial year. There are three categories in the cash flow statement. One is Operating activities, which reveals the amount of cash that came from the sales of goods and services less the amount needed to sell goods/ services. The second one is Investing activities, which shows the amount of cash spent on capital expenditure. And, the third one is Financing activities, which shows the amount of cash spent on outside financing. 

 

The Balance Sheet of a company gives an insight into the assets, liabilities, and shareholders’ equity at a specific point in time. It indicates the financial health of the company.

 

In a Profit & Loss Account, we can see the details of the revenues and expenses of business throughout the financial year. It differs from the balance sheet as it records performance over some time rather than a snapshot.