Annual Accounts Example: How Do Companies Prepare?

For many business owners, annual accounts are a source of stress. The paperwork, financial details, and strict compliance rules can feel overwhelming, especially if accounting isn’t your strong suit. Still, preparing and filing them is a legal responsibility that no company can afford to ignore.

The truth is, annual accounts aren’t as complicated as they seem. At their heart, they’re just a record of your company’s financial performance over the past year. With the right breakdown and a clear example, the process becomes far easier to understand.

In this blog, we’ll explain what annual accounts include, why they matter, and show you a simple company annual accounts example for clarity. By the end, you’ll know exactly how the process works and what steps to take for your business.

What are Annual Accounts?

Annual accounts are a set of financial statements that detail your business's performance over its financial year. Think of it as your company's official report card. It shows stakeholders, including shareholders, lenders, and government bodies, exactly how your company has performed financially. The key components of a balance sheet include balance sheet, profit & loss account (cash flow for larger firms), notes, statement of changes in equity, director’s report, and auditor’s report, where applicable.

For example, a simple set of annual accounts for a UK private limited company would include a balance sheet showing what it owns and owes, and a profit and loss statement detailing its income and expenses.

You need annual accounts for two main reasons:

• They are a legal requirement for all limited companies in the UK. These accounts must be sent to Companies House, HMRC, as part of your Company Tax Return, and your company's shareholders.
• They ensure transparency and accountability, proving that you are fulfilling your duties as a director and that your company is operating in a compliant manner.

What are the Legal Requirements for Preparing Annual Accounts?

Under UK company law, specifically the Companies Act 2006, every limited company must prepare statutory accounts. The goal is to ensure consistency, transparency, and comparability across all companies. Key legal requirements include:

• Preparation Standards – Accounts must comply with UK GAAP and fairly represent the company’s financial health.
• Different Deadlines for Filing – Within 9 months after the company’s financial year-end. For the first year, within 21 months from the date of incorporation.
• Submission Obligations – Accounts must be filed with Companies House and sent to HMRC.
• Disclosure Rules – Must include accounting policies, transactions, and other relevant details for stakeholders and the public record.

What are the Types of Annual Accounts for Different Company Sizes?

Not every business in the UK is required to prepare and file the same level of detail in its annual accounts. Here’s how annual accounts work based on the size of your company or the number of company members present:

1. Micro-Entity Accounts

Micro-entities are very small companies that benefit from the most simplified reporting requirements. To qualify, a company must meet at least two of the following conditions: turnover of £632,000 or less, a balance sheet total of £316,000 or less, or an average of 10 or fewer employees.

Micro-entities can prepare highly abridged balance sheets and profit and loss accounts, provide minimal notes, and are exempt from preparing a director’s report.

2. Small Company Accounts

Small companies fall above the micro-entity thresholds but still benefit from reduced filing requirements compared to medium or large companies. To qualify, a company must meet at least two of the following conditions: turnover of £10.2 million or less, a balance sheet total of £5.1 million or less, or an average of 50 or fewer employees.

Small companies can prepare abridged accounts, include limited notes, and must submit a director’s report. An audit is generally not required unless specifically requested by shareholders or lenders.

3. Medium and Large Company Accounts (Full Accounts)

Companies exceeding the small company thresholds must prepare full statutory accounts, which are the most detailed form of reporting. Medium companies exceed the small company limits but meet at least two of the following conditions: turnover of £36 million or less, a balance sheet total of £18 million or less, or an average of 250 or fewer employees.

Large companies exceed these thresholds. Full accounts require filing a complete balance sheet, profit and loss account, cash flow statement, notes to the accounts, and a detailed director’s report. An audit is mandatory, along with disclosure of additional information such as employee numbers, turnover by business segment, and directors’ remuneration.

How to Prepare Annual Accounts?

Preparing a company’s annual accounts is not just a compliance exercise. It’s a structured process that ensures your company’s financial information is ready for submission. Here are the key steps:

1. Organise Your Records

The foundation of accurate accounts is well-kept records. This means maintaining up-to-date bookkeeping, reconciling bank transactions, and keeping track of invoices, payroll, and expenses throughout the year. Leaving this until the last minute often leads to errors or missed deadlines.

2. Check Your Company Size Classification

Before preparing your accounts, determine whether your business qualifies as a micro-entity, small company, or medium/large company. This classification affects how detailed your accounts need to be, whether you require an audit, and what exemptions you can use to simplify reporting.

3. Apply the Right Accounting Standards

All statutory accounts must comply with recognised standards such as UK GAAP (Generally Accepted Accounting Practice) or, in some cases, FRS (Financial Reporting Standards). These frameworks ensure your accounts are consistent, comparable, and legally acceptable.

4. Involve the Right People

Even if directors are legally responsible, most companies rely on accountants, bookkeepers, or auditors to prepare their accounts. Larger firms may also have internal finance teams, while smaller businesses often outsource this work to an accounting practice. The important part is ensuring that whoever prepares the accounts understands both compliance requirements and the business’s operations.

5. Review for Accuracy and Compliance

Once the accounts are drafted, directors must review them carefully. This step involves checking disclosures, ensuring deadlines will be met, and confirming that the figures align with supporting documentation. Any mistakes at this stage can lead to penalties or reputational risk.

6. Approve and Sign Off

Before submission, the board of directors formally approves the accounts, and at least one director must sign them. For audited companies, the auditor will also provide their report at this stage.

7. File with Companies House and HMRC

Finally, the approved accounts must be filed with:

• Companies House – usually within 9 months of the financial year-end (21 months for a company’s first set of accounts).
• HMRC – as part of the company tax return, due 12 months after the year-end.

What is an Example of Annual Accounts?

To understand company annual accounts in practice, it helps to look at a simplified example. Annual accounts are not just about compliance; they are a structured way to tell the financial story of a company over the course of a year. Below is a simplified company annual accounts example:

1. Balance Sheet (Snapshot of Financial Position)

Imagine a mid-sized fictitious UK company at the end of its financial year. Its balance sheet might look like this:

• Assets: £2,500,000 (including stock, cash, and property)
• Liabilities: £1,200,000 (loans, trade payables, and tax obligations)
• Shareholders’ Equity: £1,300,000

This balance sheet shows that the company is solvent, with more assets than liabilities, and has retained earnings that strengthen its equity position.

2. Profit and Loss Account (Performance Over the Year)

The same company’s profit and loss statement could read as follows:

• Turnover (Revenue): £5,800,000
• Cost of Sales: £3,400,000
• Gross Margin: £2,400,000
• Operating Expenses: £1,600,000
• Net Profit Before Tax: £800,000
• Corporation Tax: £152,000
• Net Profit After Tax: £648,000

This tells us that the company generated healthy profits after covering its costs and obligations.

3. Cash Flow Statement (Movement of Cash)

For larger companies (or where required), a cash flow statement illustrates liquidity. Here is an example:

• Net Cash from Operating Activities: +£900,000
• Net Cash from Investing Activities: -£300,000 (e.g., purchase of equipment)
• Net Cash from Financing Activities: -£200,000 (e.g., loan repayments)
• Closing Cash Balance: £400,000

Even though profits look strong, the cash flow shows how money is being reinvested and used to reduce debt. This is important for stakeholders assessing day-to-day liquidity.

4. Notes to the Accounts

It offers additional explanations and breakdowns of figures in the financial statements, helping stakeholders understand the numbers and accounting policies used. Here is an example:

Accounting Policies

• Revenue Recognition: Revenue is recognised when goods are delivered to customers and control has passed.
• Depreciation: Fixtures and fittings are depreciated on a straight-line basis over 5 years.

Breakdown of Operating Expenses

• Administrative Expenses: £120,000
• Marketing and Advertising: £45,000
• Staff Costs: £280,000

Contingent Liabilities

The company is currently involved in a contractual dispute with a former supplier. Legal advice suggests that potential liability may be up to £25,000, though management considers this unlikely.

5. Director’s Report

It summarises the company’s performance, key risks, and future plans, giving stakeholders insight into management’s perspective. Here is an example:

• Business Performance: The company achieved a 15% increase in turnover during the year, driven primarily by strong growth in online sales and the successful launch of two new product lines.
• Principal Risks and Uncertainties: Rising raw material costs and extended supplier lead times continue to present risks to profitability. Management is actively diversifying the supplier base to mitigate these risks.
• Future Developments: The company plans to open two new branches in Manchester and Birmingham in the next financial year and invest in a new inventory management system to improve efficiency.

6. Auditor’s Report (if applicable)

It provides an independent opinion on whether the financial statements give a true and fair view and comply with relevant accounting standards. Here is an example:

Independent Auditor’s Statement:
In our opinion, the financial statements of ABC Ltd for the year ended 31 December 2024 give a true and fair view of the state of the company’s affairs as at that date and of its profit for the year then ended. The financial statements have been properly prepared in accordance with UK Generally Accepted Accounting Practice and the requirements of the Companies Act 2006.

Signed,
[Auditor’s Name]
XYZ Audit LLP
Chartered Accountants & Statutory Auditor
London, UK
Date: 15 Sep 2025

7. Statement of Changes in Equity

It shows the movement in shareholders’ equity over the accounting period, including retained earnings, share capital, and other reserves.

For example, the company started the year with £500,000 in share capital and £700,000 in retained earnings, giving a total equity of £1,200,000. During the year, the company made a net profit of £648,000, which increased retained earnings to £1,348,000. After paying dividends of £200,000, the closing retained earnings stood at £1,148,000, resulting in a total closing equity of £1,648,000. This statement highlights how profits, dividends, and other adjustments impact the company’s ownership value over time.

This statement shows how the company’s profits are retained or distributed, and how equity changes due to profits, dividends, or other adjustments, giving stakeholders a clear picture of ownership value over time.

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We include professional advice on tax as part of the process. You’ll always be able to ask your dedicated accountant questions, review the numbers, and then approve the final accounts. Once approved, we’ll file everything with Companies House and HMRC so you meet all your deadline obligations.

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Wrap Up: Your Path to Clear and Compliant Accounts

Annual accounts are more than just a legal requirement. They are a structured way to tell your company’s financial story, highlighting growth, challenges, and future plans.

By understanding the key components, following the right preparation steps, and ensuring compliance with UK standards, you can present clear, accurate, and actionable insights to stakeholders.

Whether you’re a micro-entity or a large company, taking a methodical approach to preparing and filing your annual accounts ensures transparency, accountability, and confidence in your business’s financial health.

Frequently Asked Questions

1. Who needs to prepare and file annual accounts in the UK?

All UK limited companies must prepare and file annual accounts to remain compliant with company law. Your annual accounts provide a snapshot of your company’s financial health, including a balance sheet and profit and loss accounts.

2. How can I make sure my annual accounts are compliant?

To ensure compliance when preparing annual accounts, it is recommended to use a checklist that covers key requirements such as accurate records of income and expenditure, the completeness of the balance sheet and profit and loss account, disclosure notes, and adherence to relevant UK company law standards.

3. What are the key components of annual accounts, and where can I find examples?

Key components include the balance sheet, profit & loss account (cash flow for larger firms), notes, director’s report, and auditor’s report, where applicable. If you are seeking a template or illustrative example of annual accounts prepared under FRS 102, the Financial Reporting Council (FRC) often publishes example accounts and templates on its website. For instance, you could find an example annual account for micro entities in it.

4. How do annual accounts for charities differ from those of commercial companies?

Annual accounts for charities follow different reporting standards (the Charities SORP) compared to commercial companies. They focus on accountability to donors and the public, often requiring more detailed disclosure on how funds are used. The audit and reporting thresholds for charities also differ from those for businesses.

5. What is the process for filing annual accounts with Companies House?

The filing process involves preparing your accounts in accordance with company law, getting them approved by a director, and submitting them to Companies House before the deadline. This can be done online or by post. Many companies use an accountant to ensure the accounts are correct and filed on time.

6. Why is it important to use illustrative annual accounts when preparing financial statements?

Using illustrative annual accounts provides a clear template to follow, ensuring accuracy, compliance, and completeness in your financial statements. They also help visualise how different components like balance sheets, profit & loss accounts, and notes, fit together to tell the company’s financial story.

7. What is a dormant annual accounts example?

A dormant annual accounts example shows the simplified financial statements of a company that hasn’t conducted any significant transactions during the year. These accounts usually include a minimal balance sheet with basic details like share capital and cash, confirming the company’s legal compliance with Companies House, even though it hasn’t traded. For example, assets might be £1, liabilities £0, and shareholders’ equity £1.

8. Are there sample annual accounts formats for charities in the UK?

For charities in the UK, there are sample annual accounts formats available which are designed to meet regulatory requirements and standards such as UK GAAP and FRS. These sample formats can be found on regulatory bodies’ websites, such as the Charity Commission, and are useful for ensuring your accounts meet compliance expectations.