Running a business:
Why you need financial statements

Each year a business needs to produce accounts, and these annual accounts are often referred to as financial statements.

For an unincorporated business, the financial statements are needed for tax purposes and the profits must be calculated in accordance with generally accepted accounting practice. There is, however, some flexibility as to how the accounts are presented. For example, some very small businesses may produce a profit and loss account but not a balance sheet.

For companies the legal requirements depend on whether the company is small or medium sized, or not. We discussed this in issue 2 of our newsletter, balanced.

All companies must produce financial statements that are prepared in a given format and in accordance with set rules. They must show a 'true and fair' view of the position of the company. Generally accepted accounting practice and financial reporting standards must be followed. Unless the company is 'small', the financial statements must be audited.

If you provide services you may also need to account for income where you have done some of the work but not yet raised an invoice. For more details, click on the link to "Services contracts - the tax liability time bomb!" in the related literature below.

All companies must file financial statements at Companies House. Private companies must file the accounts within ten months of the end of their financial year, and the deadline for public companies is seven months. Small and medium sized companies can file abbreviated accounts that show less information than the full financial statements.