By Michelle Quince, Senior accountant at Hive Business

January is over and accountants across the country are breathing a sigh of relief!  More than likely you’ve already received your accounts and tax return and signed in the relevant place to say that you’re happy with what they both say.  But do you really know how these two documents can help you better understand your business?

I guess it’s like a bit like you writing a report on the latest implant technology – we can read that report and get the gist of it but we’d probably have to ask a lot of questions before we truly understand it.  With that in mind, below is a brief guide explaining what these two key documents are trying to tell you:

Accounts

Your accounts are like the annual story of your business in number format.  Think of it like a journey to the top of a mountain – the “Income Statement” is the journey of how you got there and the “Balance Sheet” is a view from the top:

Income Statement

On your journey, you met several people who paid you some cash to make their smile beautiful again (Turnover).

You needed some implants and other materials to do the job so you paid someone for those items (Cost of sales).

But you couldn’t fix their smile on the road so you rented some space, and you needed a bit of help so you hired a dental nurse to assist you (Establishment costs / Administrative expenses).

This went on for a period of time and at the end of the journey (your year-end), we added all of these things up and showed you how the journey went.

Balance Sheet

When you got to the end of your journey (your year-end), we took a step back and took a snapshot of the view.  It showed:

• • What you owned (Assets);
  • What you owed (Liabilities);
  • And what’s left (Retained Earnings.

Individually, these two schedules portray their own information, but together they give you a much more colourful picture.

Tax Return

Your tax return is essentially a compilation of your accounts, along with details of the other information that you supply to us each year (e.g. pension contributions; dividend income; etc).  Alongside your tax return comes your tax computation – this document is as it says on the tin, a calculation of all the items in the tax return to show you how much tax you have to pay.

The tax computation is further explained in our recent blog: Your Personal Tax Computation Explained.

Here at Hive, we try to be as transparent as possible so if at any time you’re feeling a bit lost or overwhelmed by tech-speak, please tell us.  We will do our upmost to ensure you understand everything we do and why we do it.  Accountancy can be seen as a bit of a dark art and we want to lift the veil and help our clients to see how the numbers can assist them in driving their businesses forward.

If you’d like to find out more about how we can help you and your business, call us on 01872 300232 or email us at hello@hivebusiness.co.uk.