Limited company accounts

Key Terminology

Share capital

• Authorised share capital: maximum number/value of shares the company may issue, set in the memorandum and articles of association
• Issued capital: shares actually sold to investors — must be ≤ authorised capital
• Ordinary shares: carry voting rights at AGM; receive variable dividends that change with profit level; last to recover capital if the company fails

Reserves

• Capital reserves — created from changes in business structure; cannot be used to pay dividends
• Revenue reserves — created from trading activities; can be used to pay dividends

Dividends

• Interim paid dividends: paid during the year (typically after 6 months); shown in the financial statements; reduces retained earnings
• Final proposed dividends: proposed at year end by directors at the AGM; not yet paid at year end; shown as a note only — not a current liability

Other key terms

• Debentures: long-term loans to limited companies; fixed rate of interest per annum; repaid in full at redemption date; shown as non-current liabilities on the SFP
• Equity: ordinary share capital plus all reserves (both capital and revenue)
• Finance costs: interest on debt financing (e.g. debenture interest); charged in the income statement below profit from operations
• Taxation: corporation tax payable to HMRC; deducted after profit before tax
• Retained earnings: profit after tax minus dividends paid — the only equity item that can be negative