Understanding Annual Accounts and Financial Statements

Topic 18: Annual Accounts Explained

Annual accounts are essential accounting documents that enterprises must prepare. These documents form a cohesive unit and must be compiled according to legal provisions. Their purpose is to provide a true and fair view of the company's assets, financial position, and results.

These annual accounts are deposited in the commercial register, making them accessible to various economic and social stakeholders, including shareholders, employees, government bodies, and financial institutions. They are prepared at intervals of 12 months.

Account Models: Normal vs. Abbreviated

Annual accounts can be filed using two models: normal and abbreviated. Companies may use the abbreviated model if, at the closing date of the financial year, they meet specific criteria related to their total assets, annual turnover (sales), or number of employees, and do not exceed certain thresholds (must meet at least two criteria).

Components of Annual Accounts

The following documents form the core of the annual accounts:

1. Balance Sheet

   This statement presents a company's assets, liabilities, and net worth at a specific point in time, organized into economic categories. Its structure is designed to easily show the relationship between funding sources (equity and liabilities) and investments (assets).

   The balance sheet must clearly reflect the company's economic and financial situation and the profit or loss at the close of the fiscal year.

2. Profit and Loss Account

   Also known as the income statement, this document details the revenues and expenses for the financial year and calculates the net result (profit or loss). It accounts for gains and losses recognized during the period.

3. Statement of Changes in Equity

   This statement reports changes in a company's equity during the year and consists of two parts:

   • The statement of recognized income and expense.
   • The statement of total changes in equity, detailing transactions with the company's owners or partners.

4. Statement of Cash Flows

   This statement reports on the sources and uses of cash and cash equivalents during the period, classifying cash flows from operating, investing, and financing activities. It indicates the net change in cash and cash equivalents over the year.

5. The Memory (Notes)

   This document complements, expands upon, and explains, with a sufficient level of detail, the economic events affecting the company that are summarized in the other financial statements. It explains any aspect necessary to present a true and fair view of the company.