Business accounting

While only Limited Partnerships and Limited Companies must produce formal accounts, all businesses need a way of keeping track of their income, expenditure, assets, debts (liabilities) and any profits/losses.

Businesses preparing published accounts must follow a series of accounting principles and conventions that allow them to be compared against other organisations. These accounts show a snapshot of a business’ activity on one day at the end of their tax year. HMRC have set ‘accounting principles’ to ensure accounts are produced in a standard format to allow this comparison.

The Balance Sheet
Profit & Loss Account
Cashflow Statement
Essentials Tip: Cashflow vs Profit

A business’ cashflow shows all the money flowing into and out of a business over a period of time, calculated at the exact time the cash physically enters or leaves the bank account or business.
Profit is the difference between the total amount the business earns and the total costs to run the business.


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A business will use their accounts to:

  • Monitor how well the business is doing
  • Look for areas of growth or improvement
  • Track assets, loans and liabilities
  • Calculate what tax is owed
  • Manage dividends and profit distribution

Lenders, Investors, and Customers will use a business’ accounts to:

  • Monitor how well a business is doing
  • Judge lending/investment risks

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