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Should i show a negative balance sheet?

Hi

My wife and I set up a new ltd company last year, buying jewellery from wholesalers and selling it retail online.  I have just competed the 1st years book keeping and through my software i have noted a negative balance sheet due to the loans that I and my wife have made in the year.  I do not really want to show that the company has a negative balance sheet so what can i do?

The balance sheet consists of stock valued at cost and in addition the few fixed assets purchased in the year and of course the directors loans

In terms of trading, as it was the 1st year of the company we spent a fortune on advertising, web design and subscriptions, courses, and generally setting the comany up - hence a loss of £2-3K

It will be a profitable business going forward, now in our 18th month of trading we are covering cost, so what to do with the 1st year accounts?  is there something i can put on the balance sheet -- goodwill?

Regarding accountants, unfortunately i will be doing the 1st year accounts myself as we could not afford this year (i analyse business accounts for management purposes - but no tax knowledge) so any help greatly appreciated!

Thank you

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29th Nov 2012 16:22

Who cares?

Why should you be bothered about the negative balance sheet? Any effect it may have on Trade Credit etc will be negligible.   

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29th Nov 2012 16:37

Agree

It does not matter much, but goodwill is not an option. You could make things look a little better by deferring the directors’ loans to after more than one year. That should leave you with net current assets.

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Prepayments?

Have you calculated prepayments on subscriptions, insurances, software licences etc? Unfortunately you can't just invent things to go on the balabce sheet as apart from anything else every debit will have a credit!

An insolvent balance sheet can be a pain. Suppliers who use credit checking agencies e.g. Staples will turn you down at the till as will mobile phone providers if you are looking for a business tariff. If, however, you are content to fund the business from its cash then none of this will cause you a real problem as Roland says.

 

 

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By Old Greying Accountant
29th Nov 2012 16:48

You could ...

... shorten the year end by at least three months, and file both sets simultaneously, assuming the second set shows net current assets! 

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.

Basic maths.

If you made a loss in the year you will almost certainly have a negative balance sheet.

 

NB for filing to HMRC you have to submit a "iXBRL" file, ie you cant lob them a paper file...so do be warned your hard work in trying to do this yourself might be thwarted at the last minute. 

 

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By Old Greying Accountant
29th Nov 2012 17:01

Not so

ireallyshouldknowthisbut wrote:

Basic maths.

If you made a loss in the year you will almost certainly have a negative balance sheet.

 

NB for filing to HMRC you have to submit a "iXBRL" file, ie you cant lob them a paper file...so do be warned your hard work in trying to do this yourself might be thwarted at the last minute. 

EG: If you put in £20k of share capital and made a £10k loss you would stll have a +£10k Balance Sheet!

I did see a set this week (downloaded from CH) where the long term creditors were added to Share Capital!

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By SJRUK
29th Nov 2012 16:56

Capitalise

You could possibly capitalise your website costs.

This toolkit may be handy to identify how to treat costs, if you haven't already seen it

http://www.hmrc.gov.uk/agents/toolkits/capital-v-revenue.pdf 

 

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29th Nov 2012 16:57

Website

Have you spent a large sum on a website that may potentially be calssed on the balance sheet rather than P&L?

As above any prepayments to put through and show loans (DLA) in more than one year with a note to the accounts stating DLA will not be taken until sufficient funds held in the company to do so.

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By Old Greying Accountant
29th Nov 2012 17:03

Agree

Fidodido wrote:

Have you spent a large sum on a website that may potentially be calssed on the balance sheet rather than P&L?

As above any prepayments to put through and show loans (DLA) in more than one year with a note to the accounts stating DLA will not be taken until sufficient funds held in the company to do so.

... and for belt and braces I would prepare and sign a formal subordination letter.

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By andrews
30th Nov 2012 13:58

deferring dla

Fidodido wrote:

show loans (DLA) in more than one year with a note to the accounts stating DLA will not be taken until sufficient funds held in the company to do so.

think this may be my option, not quite sure how to show it this way though but will look at my free agant account (yes i am using that)

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.

@OGA true, you could have a massive share capital. 

There is of course the other option, shut it down, trade as a partnership until you make enough ££££ to actually form a company, then do it properly....

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By Old Greying Accountant
29th Nov 2012 17:21

Agreed ....

ireallyshouldknowthisbut wrote:

@OGA true, you could have a massive share capital. 

There is of course the other option, shut it down, trade as a partnership until you make enough ££££ to actually form a company, then do it properly....

... and you would have goodwill to capitalise too and give yourself a nice 10% tax rate for a while!

But, the original purpose of share capital and companies was just that, introduction of working capital to fund a venture!

 

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30th Nov 2012 09:07

If all the replies don't suggest you see an accountant we haven't done our jobs properly

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By DMGbus
30th Nov 2012 09:19

Stock

Presumably the Balance Sheet includes any unsold stock in possession at the financial year end?

Non-accountant accounts drawer-uppers (such as some bookkeepers and most business owners) could easily omit this important financial value (just as they might omit accruals, trade creditors, trade debtors and prepayments). 

 

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By andrews
30th Nov 2012 13:56

stock

DMGbus wrote:

Presumably the Balance Sheet includes any unsold stock in possession at the financial year end?

Non-accountant accounts drawer-uppers (such as some bookkeepers and most business owners) could easily omit this important financial value (just as they might omit accruals, trade creditors, trade debtors and prepayments). 

 

 

yes, all in at cost price!

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By andrews
30th Nov 2012 13:55

Thank you to one and all for your replies, i will need time to digest these and act accordingly, to be honest i have capitalised as much as i can, stock is in, haven't bothered too much with prepayments as these are negligible, given the size of the company.  I may investigate deferring the directors loans / transferring to share capital

 

Thank you for your inputs

Andrew

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