Company Accounts and Published Financial Statements
Company accounts differ from sole-trader accounts in capital structure, taxation and dividends. Published financial statements include the statement of financial position, statement of profit or loss, statement of changes in equity, notes, directors' report and auditor's report.
Core rules
- Share capital is the nominal value of shares issued; share premium is the amount received above nominal value.
- Retained earnings = opening retained earnings + profit after tax - dividends paid.
- Dividends are distributions of profit, not expenses.
- Debentures are long-term borrowings; debenture interest is an expense.
- Corporation tax is an expense based on taxable profit.
Worked example
A company issues 100,000 ordinary shares of €1 each at €1.50. Share capital = €100,000; share premium = €50,000. If opening retained earnings are €40,000, profit after tax is €25,000 and dividends paid are €10,000, closing retained earnings = 40,000 + 25,000 - 10,000 = €55,000. Total equity = 100,000 + 50,000 + 55,000 = €205,000.
Traps
Treating dividends as an expense; adding share premium to profit; confusing authorised with issued share capital; and omitting tax from profit after tax. In published accounts, read the notes: they often contain the split of expenses and the share capital details.