Unincorporated sole traders and partnerships are free to draw up their accounts in any layout they think appropriate. The traditional layouts for a small sole trader might look something like this for the profit and loss account: and like this for the balance sheet: These layouts are similar to the layouts which the Companies Act 2006 requires for company accounts. If you are thinking of becoming a company at a future date, perhaps for tax reasons, then we suggest that you stick with these layouts. However, if you know that you will always be a sole trader or partnership, then you might find it more useful to adopt the following layout for your balance sheet: This second layout has the merit that there is more of a tie-up or “flow” between the profit and loss account and the balance sheet. The bottom line on the profit and loss account shows that a profit of £23,230 has been made. The top few lines on the balance sheet show that most of this profit was taken as drawings or private payments during the year to 5th April, leaving only £1,730 of retained profit at the year end. Many clients will find this format easier to follow, and it answers the question of what has happened to the profit over the year. We therefore suggest this second format for anyone not intending to become a company. This will be your choice. The first balance sheet layout has a bundle of assets less liabilities financed by its owner through the capital account. The second layout flips over the balance sheet so we have the profit feeding in to the ownership interest, which is represented by a bundle of assets less liabilities. The Companies Act 2006 only permits the first layout for companies. Sole traders and partnerships are not bound by the Companies Act and may find the second layout more helpful. Cash Flow Statements Companies can have a free cash flow statement if we know that your bank would like one, or if we think it would be helpful in looking at your business. This is an extra page which shows the movement of cash only, which we will do in the style of International Accounting Standard 7 for any company, no matter how large or small. All our hire purchase calculations use the actuarial method so the statement will be accurate where it shows repayment of principal. Sole traders and partnerships will find that the cash flow statement is quite similar to the balance sheet in the “represented by” format, but if required then it will be provided for no extra charge.