Abbreviated accounts are the simpler version of the annual account of a small company. Abbreviated accounts are published by small and medium-sized companies as a summarised version of the full accounts. In other words, these are the condensed version of the full accounts containing only the required figures which makes them quite popular amongst small companies.
What are Abbreviated Accounts?
Definition: Abbreviated accounts are defined as a type of accounts that enabled small businesses to send just a basic balance sheet to Companies House by including a simple picture of assets and liabilities. By the way, these accounts have now been abolished. They were used for providing a basic snapshot of a business’s net value.
Importance of Abbreviated Accounts
At the end of the financial year, companies need to submit a statutory account. But many small companies choose to submit abbreviated accounts in place of the full accounts. It shows the company balance sheet, but it does not include the profit and loss account.
Small companies typically prefer the concept of abbreviated accounts. Mainly due to the reason that it does not include the detailed information of the account. Hence there is no fear of their competitors to look into their accounting details.
A company can be deemed small if it satisfies any two of the following criteria:
- The annual turnover of the company should not be more than €6.5 million.
- The maximum total of the balance sheet should be €3.26 million.
- The company should have not more than 50 employees.
Small companies do not go through a full audit. Hence, submitting a summarized account is convenient for them. The primary balance sheet shows the assets and liabilities of the company. The asset side includes bank balances, current & fixed assets, and debtors. In comparison, the liabilities side includes overdrafts, loans, and creditors.
What do you mean by Full Accounts?
A full account of a company includes a balance sheet, a profit and loss account, and thorough notes to the account. Apart from these details It also includes accountant’s and director’s report. Lastly, the company’s profit and loss statement.
All this important information is compulsory to be included in the full accounts. A full account of the company reflects the given financial status of the company.
Shifting from Abbreviated Accounts to Abridged Accounts
The United Kingdom abolished abbreviated accounts under the UK company laws as of the 1st of January 2016.
And accordingly, the company can longer follow the practice of abbreviated accounts. However, the concession of submitting the summarized version of the full accounts remains with the small companies.
They can now submit abridged accounts instead of abbreviated accounts. But now they have added few more details to it like profit and loss account. However, the company can submit the abridged account if all the shareholders agree to it.
In an abridged account, more details are included like the balance sheet, profit and loss account, and notes about the account. It is still considered a summarized version of the full account, which is to be submitted at the end of the financial year. The net profit of your company does not disclose in this account.
Necessary Information included in the Abridged Accounts
Abridged accounts contain less information than the information in the full-fledged account. Abridged accounts should at least include the balance sheet total and the related notes to the account. In addition to this, a simplified version of the profit and loss account is also added to the account.
Abridged account does not include the breakdown of the balance sheet. Also, it does not disclose the corporation tax figure. Hence the net profit of a company cannot be estimated using abridged accounts.
1. The items on the assets side
Fixed, current, and other assets, cash, prepaid expenses, inventory, marketable securities, and accounts receivable.
2. The items on the liabilities side
Current and accrued liabilities, tax payable, long-term and short-term debts, and accounts payable.
3. Shareholder’s equity
This is another heading under the liabilities side. It includes common stock, retained earnings, and treasury stock.
Also, it is possible to filter abridged accounts. In this version, the profit and loss report can be removed from the companies’ house version.
Upsides of Abridged Accounts over Abbreviated Accounts
Following are the benefits of an abridged account:
- Simplified accounts help in the ease of audit.
- Since a complete detail is not required while preparing this account, it reduces the administration burden on micro-entities and small companies.
- Less information is accessible to the competitors and general public.
How Abridged Accounts put the company at a Disadvantage
Following are the disadvantage of the abridged account:
- A company or firm will find it challenging to raise money from lenders or banks. This is due to the limited information posted in their accounts. Hence limiting the scope to get credit for the business.
- Due to the absence of a profit and loss statement, it is hard to judge a company’s or firm’s profit margin.
- Due to the lack of detailed information on the abridged account, it becomes difficult for the company to find investors.
Options for Micro-entity Accounts
The option for an abridged account is also available for those having a smaller turnover known as micro-entities. Since the nature of the business is petite, they don’t need to submit the director’s report. And also less information on the balance sheet and profit and loss account than the small companies.
To file an abridged account for micro-entity, the firm should fulfill any two of the following criteria.
- The annual turnover of the firm should not exceed €632,000.
- The balance sheet of the firm should not exceed €316,000.
- The maximum number of employees in the firm should be 10
Filleted Accounts replacing Abbreviated Account
Small businesses that used to file abbreviated-account can now file filleted accounts with Companies House in which they can choose not to send the profit & loss account and/or the director’s report to Companies House. You can do this whether your accounts are prepared for full, micro, or abridged accounts.
All in all, using an abridged account will help you prepare your profit & loss account and balance sheet without disclosing the full information while opting for a filleted account will enable you to send specific reports to Companies House incorporating your profit & loss account or the director’s report.
The abbreviated account was a convenient concept for small-sized companies. It required them to submit the summarized account with essential details. Since such companies weren’t subject to a thorough audit, they didn’t need to submit the full accounts.
However, this practice was abolished under the UK companies law as of the 1st of January, 2016. But to compensate for this, the small companies and micro-entities can submit abridged accounts. The concept of abridged accounts is similar to the abbreviated accounts. But the abridged account included more details. Judging by the pros and cons, this account could be beneficial depending on the situation.
Now, what are your thoughts about the available alternatives of abbreviated accounts? Share your opinion with us in the comment section below.