Last reviewed: July 2026.
Limited company accounting separates the company from its shareholders. The company owns its assets, owes its liabilities and reports equity through share capital, reserves and retained earnings.
The legal form affects capital transactions, dividends, governance and disclosures, but ordinary revenue, expense, asset and liability recognition still follows the applicable accounting requirements.
Company accounting structure
| Area | Typical records | Main accounting question |
|---|---|---|
| Share capital | Issued shares by class and amount | Is the instrument equity or a liability? |
| Other contributed equity | Share premium or additional paid-in capital | How are issue proceeds and costs allocated? |
| Retained earnings | Accumulated profit less distributions | What profit remains after recognised transactions? |
| Reserves | Revaluation, translation and other components | Which Standard created the equity movement? |
| Borrowings | Loans, debentures and lease liabilities | What are the contractual cash obligations? |
Separate legal entity
Shareholder transactions are not personal transactions of the company. Capital introduced by issuing shares increases company equity; dividends are owner distributions rather than business expenses.
The accounting equation remains assets = liabilities + equity.
Share capital
Share capital records issued equity according to local company law and the instrument's terms. Nominal or par value rules vary by jurisdiction.
Use the share capital accounting guide for issue entries and presentation.
Equity versus liability classification
IAS 32 classifies an instrument by contractual substance. An equity instrument generally contains no contractual obligation to deliver cash or another financial asset.
Preference shares with mandatory redemption or unavoidable cash dividends may be liabilities, even when legally described as shares.
Ordinary shares
Ordinary shares commonly provide residual ownership, voting rights and discretionary dividends. They are normally equity when the issuer has no contractual cash-settlement obligation.
Rights can differ by class, so the articles and issue terms must be reviewed.
Preference shares
Preference shares may receive priority dividends or repayment. Classification depends on redemption, dividend and settlement clauses rather than the word “preference.”
A compound instrument may require separate liability and equity components.
Share issue entry
A company issues 100,000 ordinary shares for 2.50 CU each, with nominal value 1 CU:
- Debit cash 250,000 CU
- Credit share capital 100,000 CU
- Credit share premium or additional paid-in capital 150,000 CU
The equity labels and legal restrictions depend on jurisdiction.
Share issue costs
Directly attributable costs of an equity transaction are deducted from equity, net of related tax effects. Costs shared with other transactions require a reasonable allocation.
General administration and unsuccessful fundraising costs may require different treatment.
Retained earnings
Retained earnings accumulate recognised profits and losses, prior-period adjustments, transfers and distributions. They do not necessarily equal cash or legally distributable reserves.
Local company law determines dividend capacity and capital maintenance.
Dividends
Dividends reduce equity and are recognised as liabilities when appropriately authorised and no longer discretionary. A post-reporting-period declaration is generally disclosed rather than recorded at the reporting date.
Review the dividend accounting guide.
Reserves
Reserves can include revaluation surplus, foreign currency translation amounts and other accumulated comprehensive income. Each reserve should be traced to the Standard and transaction that created it.
A reserve is not automatically cash set aside.
Loans and debentures
Borrowings are measured and presented separately from equity. Coupon payments, effective interest, premiums and transaction costs affect the liability carrying amount.
Debt-equity classification should be reviewed at issuance and when terms change.
Company financial statements
A complete set normally includes financial position, profit or loss and OCI, changes in equity, cash flows and notes. Share classes, capital movements, dividends, risks and related parties may require disclosure.
Use the complete financial statements guide.
Statement of changes in equity
This statement reconciles each equity component from opening to closing balance. Share issues, buybacks, profit, OCI, dividends and reserve transfers are shown separately.
Group versus separate accounts
A parent may prepare both separate and consolidated statements. The investment in a subsidiary is eliminated in consolidated accounts and replaced by underlying assets, liabilities, goodwill and NCI.
Review the group accounts guide.
Tax and regulatory balances
Company accounts often include current tax, deferred tax, payroll obligations and indirect taxes. These balances are liabilities or assets under their applicable requirements and should not be mixed with equity reserves.
Related parties and directors
Director loans, key-management compensation, parent-company transactions and shareholder balances can require related-party disclosure. Governance approval does not remove the need for correct recognition and measurement.
Capital reductions and reorganisations
Capital reductions, share consolidations and court- or shareholder-approved reorganisations are accounted for according to legal steps and economic substance. They may rearrange equity without creating income.
Keep legal resolutions, creditor protections and journal approvals together.
Company accounting controls
- maintain an authorised share register;
- reconcile issued shares to legal records;
- review instrument terms for IAS 32 classification;
- approve dividends and capital transactions formally;
- reconcile equity movements to board and shareholder resolutions;
- control access to treasury-share and capital journals.
Common mistakes
- treating all legally named shares as equity;
- recording dividends as expenses;
- crediting all issue proceeds to share capital;
- expensing qualifying equity issue costs;
- assuming retained earnings equal cash;
- confusing separate and consolidated statements;
- ignoring local legal restrictions.
Related Accounting Support guides
- company accounts summary: statements, capital and tax
- reserves versus provisions accounting differences
Key takeaway
Limited company accounting combines ordinary transaction recording with careful capital classification. Read contractual terms, separate equity from liabilities and reconcile every share, reserve and distribution movement.
Official references: IAS 32 Financial Instruments: Presentation, IFRS 7 Financial Instruments: Disclosures, and IAS 33 Earnings per Share.