Accounts of Limited Companies

Abstract

The format of the final accounts of limited companies is laid down in the Companies Act 1985. We need not concern ourselves at this level with a detailed study of the published formats, but you should carefully study the worked examples and follow the format which is used there in answering questions on accounts of limited companies. First of all, what is a limited company and what does ‘limited’ refer to? The answer is that the owner’s liability is limited to the capital of the business. In the case of sole traders and partnerships, if the business runs up debts, the proprietor is responsible for those debts and his personal assets can be taken in order to pay them. This is not so with a limited company. Outsiders are therefore more willing to invest in such a company than in a partnership, because they know the maximum amount which they can lose — i.e. the nominal value (explained later) of the shares they agree to buy.