File : The obligation of commercial companies to prepare annual accounts
What do we mean by "annual accounts" ?
The annual accounts are an inseparable set of accounting statements. For each financial year elapsed, these documents consists of the balance sheet, the profit and loss statement and the notes to these statements.
The balance sheet
The balance sheet is a snap shot of the company's assets at a given moment. It therefore describes all the funds and uses of these funds at the close of the financial year (in principle, the financial year represents the period of one year selected to assess the financial position of the company's business activities using accounting techniques).
- The "funds" correspond to the liabilities. These mainly cover:
- capital (including equity, represented by the contributions of shareholders to constitute the company's share capital, the reserves which equate to the share of non-distributed profits for past financial years, after deduction of any losses for the periods);
- short, medium and long-term debt (financial debts, including bank loans; contractual debt to suppliers (known as accounts payable); payroll debts, including salaries due; tax debts for different taxes and duties) and any profits made by the company.
- The "use" of these funds are listed under assets. These mainly cover:
- fixed assets (land, buildings, investments, patents etc. ) ;
- temporary or circulating assets (inventory, receivables, marketable securities, cash flow etc.);
- any potential losses suffered by the company.
Good to know: The balance sheet is presented in the form of assets and liabilities. The assets always equal the liabilities, regardless of whether the company makes a profit or a loss. To record any financial flow in accounting, two identical amounts must always be entered: one, under liabilities, to explain the source of the money, the other, under assets, to explain how that money was used.
Profit and loss account
The profit and loss statement summarises, at the end of the financial year:
- The income (the amount of goods and services provided by the company) ;
- The expenses (the amount of goods and services used by the company) ;
- The result of these two amounts, i.e., as appropriate, a profit or a loss. This balance represents the profit (or loss) for the financial year.
Good to know: This document mentions the change in assets that the company has gained or lost during the financial year. Income and expenses are listed by category: they are presented either in the form of tables, or in the form of lists so they can be compared with the previous year.
The notes are intended to provide an explanation.
- They must in effect make it possible to understand the key points of the balance sheet and the profit and loss account.
- They must supplement the data contained in the balance sheet and the profit and loss account.
- They must highlight any significant information, mainly concerning the business activity, the assets, financial situation and profits of the company, i.e. all relevant facts that may be of interest to the recipients of such information.
Good to know: The annual accounts may use a simplified presentation when, at the end of the last financial year, companies meet two of the following three criteria:
- For the simplified balance sheet and the profit and loss statement:
- a total amount of the balance sheet less than or equal to €267,000 (this total is defined as the total net amounts for the elements under assets);
- a net turnover of less than or equal to €534,000 (this threshold is the amount of products and services sold for the current activity, less sales discounts, VAT and diverse taxes);
- a number of permanent employees less than or equal to ten (this number refers to the average number of permanent salaried employees during the financial year, equal to the arithmetic average of the staff base at the end of each quarter of the calendar year or financial year, when the financial year does not follow the calendar year, employed by the company on a permanent employment contract).
- For the simplified notes:
- a balance sheet total less than or equal to €3,650,000;
- a total net turnover less than or equal to €7,300,000;
- a number of permanent employees less than or equal to fifty.
In addition, companies are entitled to submit the notes in an abbreviated form when:
- their balance sheet total is less than or equal to €3,650,000;
- The net amount of their turnover is less than or equal to €777,000 for the sales of housing goods or supplies and €234,000 for service provision;
- The number of their permanent employees is less than or equal to fifty.
Good to know: Given the complexity of accounting law regulations, it is highly recommended to get corporate annual accounts, especially for commercial companies, prepared by an experienced accounting professional, i.e., an accountant.