Company Accounts: The Basic Structure
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Company Accounts: The Basic Structure

Most trade unionists are reluctant to delve too deeply into the annual accounts of their companies. From time to time they will pick out figures in isolation, such as the wage bill or the profit or loss for the year.
                             company accounts basic structure

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Most trade unionists are reluctant to delve too deeply into the annual accounts of their companies. From time to time they will pick out figures in isolation, such as the wage bill or the profit or loss for the year.

But, there is a wealth of information which can be extracted from the accounts. For example the (profit and loss account) will show how these figures were calculated, how these profits or losses were made, and how they were allocated.

The balance sheet will demonstrate the net worth of the company and whether that value has increased during the year. It will also indicate whether the enterprise is sufficiently "liquid" - does it have adequate reserves of cash, or assets which can easily be converted into cash? Has the company financed its operations and assets by heavy borrowing? Or has it raised a large proportion of its funds from shareholders, or used accumulated reserves?

A funds flow statement will show the sources of funds coming into the enterprise and how these funds have been used. For this reason, it is also known as the statement of sources and uses of funds. To what extent has it been dependent on external sources of finance such as grants or loans? Has the company allocated adequate funds to replace capital assets used up during the year?

Where there is a statement of value added, it can be used to calculate the degree to which the enterprise and its employees have created real wealth; moreover the statement will show how this wealth has been distributed between the employees, the government, the shareholders and the reserves of the company itself. Even in cases where value added statements are not published, they can be constructed by negotiators from the information contained in the profit and loss account and its accompanying notes.

The analysis of company accounts need not be too difficult. Years ago, it was extremely difficult to generalize about the layout of company accounts. In the past, countries have adopted laws to regulate the minimum amount of information which must be disclosed in company accounts, but inevitably these laws have been drawn up to reflect particular legal systems, or the industrial and commercial world in which the companies operate. Consequently the accounts of an enterprise based in one country might look very different from those of an enterprise in another. One set of accounts might have a great deal of information about the level of operating costs, while another set of accounts might jump straight from turnover to operating profit.

 

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Comments (3)

nice account.

Very informative. Nice play on words Rama.

great article

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