Czech company Financial statements: what they contain

All companies registered in the Commercial Register, associations, societies, institutes or foundations must publish their accounts. It tells about the company's management, its financial stability and its ability to stand in the future. Find out what it contains and why, and how to navigate through it.

What are financial statements?

The financial statements are the final outcome of the financial statements. It is a set of statutory financial statements to the extent required by law, depending on the size and type of your business.

These statements tell the overall performance of your business for a given period. They are a valuable source of information not only for the management and owners of the company, but also for external parties such as investors, banks, clients and authorities.

Contents of the financial statements

Section 18 of the Accounting Act sets out what the financial statements should contain. Its scope can be either full or abbreviated. You can tell which one applies to you by:

• you classify your company in the correct category of accounting units;
• find out if you are required to have your accounts audited (all audited companies publish full accounts).

The scope of the accounts then determines which financial statements you must prepare:

Balance Sheet

The balance sheet gives a comprehensive picture of the company's financial situation - it shows the amount of receivables and payables, indebtedness to third parties and the value of the company's assets.

It provides information on the amount and structure of your company' s assets and liabilities:

• assets on the one hand represent all the company's assets;
• liabilities, on the other hand, tell you about the resources with which you acquired the assets (whether they are your own or foreign in the form of loans, borrowings, etc.).

In a properly prepared balance sheet, balance sheet equality applies - total assets must always equal total liabilities. The result for the current year shown in the balance sheet must correspond to the result for the financial year in the profit and loss account.

Profit and loss account

The profit and loss account shows the structure of a company's income and expenses and its ability to make a profit. It shows the amount of taxes, depreciation and amortization, as well as operating or payroll costs.

Like the balance sheet, the income statement shows two sides that are accounted for in opposition to each other:

• Revenue represents sales recorded as they are earned;
• costs correspond to the consumption of supplies and services in order to generate revenue.

Balance sheet equality does not apply here because the difference between revenues and expenses is used to calculate the firm's profit or loss. This can be either a profit or a loss.

Note in the financial statements

The purpose of the notes to the financial statements is to supplement, expand or clarify the information in the balance sheet and income statement so that you and external audiences can interpret it correctly.

The structure of the notes and the order of the information depends on the size of the entity based on paragraphs 39(a)-39(c) of the Ordinance. In particular, it should include:

• basic information about the company and its activities;
• information on the accounting methods and principles you apply (e.g. valuation principles) or changes to them;
• information on the amount and nature of individual revenues or expenses, if they are exceptional in amount (or origin);
• additional comments on equity, reserves, securities held by the firm, overdue receivables or payables, tax arrears, etc;
• data on the average number of employees during the period, social security and health insurance liabilities, etc.

Overview of cash flows

The cash flow statement shows the movement of cash in the company. However, unlike the income statement, it tracks:

• Income, which arises as it accrues to the cash on hand or in the bank account;
• expenditure, which in turn corresponds to a decrease at the time of payment.

A cash flow statement gives you a realistic view of how money flows in and out of your business over a period of time. It explains why, for example, a profitable business is struggling with insolvency or why a loss-making business is not short of funds.

When compiling cash flow, you draw on the balance sheet, the income statement and the accounts themselves.

Overview of changes in equity

This document provides information on the increase or decrease in each component of equity between two balance sheet dates. You can use it as a source of information, particularly by comparing it with the previous period.

Annual report

If you are an entity subject to statutory audit, you must also prepare an annual report.

The annual report does not have a fixed structure, but it serves as a comprehensive document to inform owners and the public about:

• your company and its activities in the previous year;
• your product and service offerings and significant changes to them;
• the company's performance and economic situation;
• market developments in your line of business;
• plans and expectations for the future.

The annual report also includes the report of the independent auditor who audited it.

The essentials of financial statements

The financial statements do not go without the following basic information:

• the name of the entity and its registered office;
• the registration number and the information on the public register appearing on the commercial documents;
• the legal form of the entity and, where applicable, information that it is in liquidation;
• the object of the business or other activity, or the purpose for which it was established;
• the balance sheet date (or other time) at which the financial statements are prepared;
• the date on which the financial statements are drawn up.

When to prepare and publish the financial statements?

The starting point for the preparation of financial statements is the end of the accounting period and the so-called balance sheet date - usually 31 December if you are accounting within the traditional calendar year.

At the balance sheet date, your accountants will make a closing of the accounts - closing the asset, liability, expense and income accounts. The ending balances in the accounts must then show the correct balance of assets (assets), resources (liabilities) and profit or loss.

The closing of the accounts is followed by the preparation of the financial statements, when you produce the reports described above. These accounts are referred to as the regular accounts and form an integral part of your company's tax return.

You also draw up the regular accounts if you are accounting within the financial year. It is therefore important to always include the balance sheet date in the statements.

However, there are other types of accounts:

• Extraordinary - if the end of the accounting period occurs during the year, for example because the company is liquidated and no longer keeps accounts;
• Interim - if a company changes its legal form during the year, then it must prepare accounts during the accounting period, but the books are not closed;
• Consolidated - refers to controlling persons (parent-subsidiary combinations) who are required to prepare accounts for the whole consolidated entity.

Once the accounts are drawn up, they still have to be formally approved by the general meeting or sole shareholder within 6 months of the end of the accounting period (i.e. typically by 30 June).

Then, be sure to publish it in the collection of documents by delivering the accounts to the registry court. The obligation to publish the accounts applies to accounting units:

• those registered in public registers (in particular the commercial register);
• designated by a special law;
• of the type SVJ, association, institute or foundation.

Audited companies must then publish their financial statements together with the annual report.

We will handle the preparation of the financial statements for you

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