Finance theory

Company accounts and interpretation

Business accounts are produced to meet the needs of their users. Typical users and the use they make of accounts is shown below:

Shareholders

To check on quality of direction of company, as well as profitability, solvency, value of company and other signs of health.

Employees

To check on job security and scope for wage and benefit increases.

Suppliers

To check that a company is generating the cash to be able to pay up.

Inland Revenue

For calculations of Corporation tax.
There are three main financial statements that are produced by company accountants. These are:
1. The Balance Sheet setting out the financial position of the company at a particular moment in time e.g. the year end.
2. The Profit and Loss Account showing how the profit or loss of the business has been generated.
3. A cash flow statement setting out the cash inflows and outflows to the business during a particular period of time.