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Financial statement

In the UK, a Financial statement is one of the significant Company documents that presents the Company’s financial status. Most businesses are legally obliged to prepare these statements and need to be prepared from the accounting perspectives of the applicable accounting standards.

Income Statement

Purpose: A statement that compares the company’s income and expenditure to its revenue and losses within a certain period

Key Elements:

  • Revenue
  • Cost of Sales
  • Gross Profit
  • Sustaining Costs (for example, wages, accommodation, lights, etc.)
  • Operating Profit
  • Other Revenue and Expenditure (i.e., interest, taxes).
  • Net Profit or Loss

Statement of Financial Position

Purpose: Gives balance of a particular period regarding the company’s resources, obligations, and shareholders’ funds.

Key Elements:

Assets:

  • Current Assets- Current Assets 
  • Non-current assets 

Liabilities:

  • Current Liabilities 
  • Non-current liabilities include long-term debt and provisions.

Equity:

  • Share Capital
  • Retained Earnings
  • Other Reserves
  • Cash Flow Statement

Cash Flow Statement

Purpose: Illustrates the cash flow in the business for a given period.

Key Elements:

  • Operating Activities Cash Flows
  • Operating Cash Flow from Investing Activities
  • For financing activities, the cost of capital generated from activities with sources of funding are reported as follows:
  • Net Increase/ (Decrease) in Cash and Cash Equivalents
  • Statement of Changes in Equity Format

Statement of Changes in Equity

Purpose: Illustrate company shareholders’ equity variations over the reporting period.

Key Elements:

  • Opening Balance of Equity
  • Societal Alterations Caused by Profit or Loss
  • Dividends Paid
  • Issuance or repurchase of shares
  • Other Comprehensive Income

Notes to the Financial Statements

Purpose: To add more depth and coloration to the newspaper’s abstract numbers of financial statements.

Key Elements:

  1. Accounting Policies 
  2. Accounting Estimates 
  3. Capital and Revenue Reserves 
  4. Foreign Currency Transactions 
  5. Investments 6. Operating Leases 
  6. Employees’ Benefits 
  7. Income Tax 
  8. Segment Reporting

Legal Requirements and Standards

Companies Act 2006: Explains the legal antecedent on the presentation of financial statements in the UK.

UK Generally Accepted Accounting Practice (UK GAAP): The accounting structure applied by several UK corporations to develop their financial statements.

International Financial Reporting Standards (IFRS): Required for companies with American Depository Receipts, followed by some private companies.

Filing and Publication

Small Companies: Can be granted some exceptions, and simplified forms of reporting.

Medium and Large Companies: Has to present and submit full accounts with Companies House.

Public Companies: As usual, required to submit their financial statements, normally incorporated in the annual report.

Process

Preparation: Document the financial status and prepare the first versions of the financial statements.

Review: Accounting regulations and standards must be followed strictly.

Approval: They have to obtain a sanction from the board of directors.

Audit: In some cases, an independent external auditor must audit all the financial statements, especially for larger organizations.

Filing: File the financial statements with Companies House before the stipulated dates.

Publication: This series should only be done if required, and the financial statements should then be published.

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