The accounting rules and conventions for recording the business transactions of limited companies and then preparing their final accounts are much the same as for sole trader. For example, companies will have a cash book, sales day book, purchase day book, journal, sales ledger, purchase ledger and nominal ledger. They will also prepare a profit and loss account annually and a balance sheet at the end of the accounting year.
They are, however, some differences in the accounts of limited companies, of which the following are perhaps the most significant.
• The legislation governing the activities of limited companies is very extensive. Among other things, the companies acts define certain minimum accounting records which must be maintained by companies. They specify that the annual accounts of the company must be field with the registrar of companies and so available for public inspection. They contain detailed requirements on the minimum information which must be disclosed in a companies accounts.
• The owners of a company may be very numerous. Their capital is shown differently from that of a sole trader; and similarly the appropriation account of a company is different.
The Accounting Records of Limited Companies
There is a legal requirement for companies to keep accounting records which are sufficient to show and explain the companies transactions. The records should:
• Disclose the companies current financial position at any time.
1. Day to day entries of money received and spent.
2. A record of the companies assets and liabilities.
3. Where the company deals in goods. A statement of stock held at the year end, and supporting stocktaking sheets. With the expectation of retail sales, statements of goods bought and sold which identify the seller and buyer of those goods.
• Enable the directors of the company to ensure that the final accounts of the company give a true and fair view of the companies profit or loss and balance sheet position.
Registers: the statutory books
A company must also keep a number of not accounting registers. These include:
• Register of members
• Shareholders 3 per cent interests
• Register of charges and a register of debenture holders
• Directors and company secretaries
• Register of directors interests
These registers are known collectively as the statutory books of the company.