By Sheelagh Jenkins, Accountant at Hive Business
When a director signs the balance sheet on the annual statutory accounts of a private limited company, one of the statements that he or she is approving is:
‘the directors acknowledge their responsibilities for… ensuring that the company keeps accounting records which comply with Sections 386 and 387 of the Companies Act 2006.’
What does this mean?
According to Section 386 of the Companies Act 2006, every company must keep records that are sufficient to:
- show and explain the company’s transactions;
- disclose with reasonable accuracy, at any time, the financial position of the company at that time; and
- enable the directors to ensure that the company’s annual accounts comply with all relevant requirements.
Accounting records must, in particular, contain:
- entries from day to day of all sums of money received and expended by the company and the matters in respect of which the receipt and expenditure takes place; and
- a record of the assets and liabilities of the company.
There are additional requirements where a business holds stock or has a subsidiary.
Section 387 details that it can be a criminal offence not to keep accounting records as laid out in Section 386 and contains penalty provisions.
What does this mean in practice?
In very simple terms, it means that a company has to maintain bookkeeping records that are both accurate and up-to-date. For most companies, this means using an accounts software package to record all the transactions of the company and ensuring that entries are made correctly and promptly.
Bookkeeping and dividends
Directors are also responsible for declaring dividends. In order to know whether a company has sufficient reserves to declare an interim dividend, the accounting records must be reliable enough for the relevant calculations to be made.
Bookkeeping and annual accounts
The better the quality of your bookkeeping, the easier it is for your accountant to prepare your annual accounts. If your bookkeeping is in a mess, you will likely incur additional charges for the time spent making it useable. With good bookkeeping, your accountant will be able to use their expertise to identify opportunities for improvement in the running of your business, rather than spending time trying to plough through and sort out a jumble of records and figures.
We can help
Most of our clients use the Xero online accounting package. We can provide training to make sure you are using this correctly to meet your responsibilities as a director.
Having access to your live accounting data on Xero means we can regularly keep an eye on your bookkeeping to ensure it looks correct and provide support when needed. Alternatively we can perform your bookkeeping for you. Please get in touch if you need our help to fulfil this responsibility.