17 - Limited company financial statements Flashcards
what is an unincorporated business
- eg sole traders/partnerships
- no legal distinction between business and owners
- unlimited liability
- owners taxed personally on profits of business
what is an incorporated entity
- separate legal entity
- limited liability
- private/public limited companies
- taxed in their own right, tax appears on financial statements
what is GAAP and what does it comprise of
‘generally accepted accounting principles’ - GAAP
major components:
1. accounting standards eg International Financial Reporting Standards
2. national company law eg Companies Act 2006 in the UK
3. stock exchange requirements for companies on stock exchange
what are accounting standards organisations and their own standards
ORGANISATION = international accounting standards committee (IASC) founded in 1973
STANDARDS = issued international accounting standards (IAS)
ORGANISATION = international accounting standards board (IASB) formed in 2001 and replaced the IASC
STANDARDS = adopted existing IAS, Issues International Financial Reporting Standards (IFRS)
what does a complete set of financial statements comprise of
- a statement of profit or loss and other comprehensive income
- a statement of changes in equity
- a statement of financial position
- a statement of cash flows
- notes, comprising a summary of significant accounting policies and other explanatory info
what must the entity (financial statements) also display
- the name of the company
- date of financial statements
- currency in which financial statements are presented
- level of rounding
what is total comprehensive income
the difference between opening and closing equity (or net assets) other than changes resulting from transactions with owners in their capacity as owners
what is total comprehensive income made up of
its profit or loss for the period + other comprehensive income
what is other comprehensive income
items of income and expenses that are not recognised in profit or loss
eg when a non current asset is revalued, the difference between its original cost less depreciation, and its fair or market value isn’t in profit or loss, it is in other comprehensive income
what is a statement of changes in equity
shows the movement in the equity section of the statement of financial position during the year
where are share issues accounted for
the nominal amount of the issued shares is credited to the share capital account and any excess is credited to share premium
where are total comprehensive income figures for the year
they come from the statement of profit or loss and other comprehensive income
the profit or loss for the year is included in the retained earnings column and other comprehensive income is allocated to the revaluation surplus
where do dividends appear
dividends are NOT an expense so they DONT appear in the statement of profit or loss or other comprehensive income
instead they appear in the statement of changes in equity as a reduction in retained earnings
for a statement of financial position at the beginning of the year
- what are the main components?
- how do they interrelate?
assets = equity + liabilities
= opening liquidity (assets - liabilities)
for a statement of profit or loss and other comprehensive income for the year
- what are the main components?
- how do they interrelate?
income - expenses
= total comprehensive income
