Clive Murphy Ltd.

Financial Accounts

Income & Expenditure Accounts

These show the money earned in an accounting period, less related expenses. They look something like this:

Income 20,000
Materials 750
Machinery Running Costs 275
Business Motoring 1,250
Repairs and Renewals 50
Business Telephone 250
Printing, Postage & Stationary 25
Use of Home as Office 365
Laundry & Cleaning 52
Business Insurance 200
Accountancy 175

They are normally used by small businesses, that have few fixed assets (business property and equipment), and are not registered for VAT.

The income and expenses shown may not have been paid or received during the accounting period. So work done will be included, even if payment is not received until later. Similarly, expenses incurred will be included, even if not paid for until later. There will also be adjustments for stock and prepaid expenses. This is so that the figures shown accurately reflect the income and expenses generated and incurred during the period.

Profit & Loss Accounts and Balance Sheet

These are basically the same as Income & Expenditure accounts, but with a balance sheet attached.

The balance sheet shows the assets and liabilities of the business at the balance sheet date, and proves that the figures are mathematically accurate. It also indicates that the accounts have been more carefully prepared, and are therefore more reliable.

This is the style of accounts used by all but the very smallest businesses.

Company Accounts

These are accounts drawn up to meet the requirements of the Companies Acts. They will include a Profit & Loss accounts and a balance sheet, together with additional requirements such as a Director's Report.

The level of information required will depend on the size of the company, and may include specially abbreviated accounts, to limit the information publicly available at Companies House.

Cash Basis (also known as Receipts and Payments Accounts)

These are much the same as Income & Expenditure accounts, but only show payments actually received and paid. From 6 April 2013 some individual sole traders and partnership businesses will be able to elect to use cash accounts for UK tax purposes. Please see Cash Accounting.

Simplified Expenses:

Consist of:

  • Motoring expenses for business motoring which can be claimed on a mileage basis at 45p a mile for the first 10,000 miles, and 25p a mile thereafter. This method cannot be used if capital allowances have previously been claimed on the vehicle.
  • Business use of the home, can now be claimed based on the number of hours it is used for business. The rates are:
    • £10 for 25-50 hours per month
    • £18 for 51-100 hours per month
    • £26 for 101 hours or more per month
  • Premises used both as a home and for business. It isn't entirely clear why this should be different to the previous business use of the home, but HMRC gives a guest house as an example. Under the simplified system it would be necessary to deduct private use adjustments from the business expenses based on the number of occupants as follows:
    • £350 per month for 1 occupant
    • £500 per month for 2 occupants
    • £650 per month for 3 or more occupants

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