Accounting Flashcards
What is UK GAAP?
Generally Accepted Accounting Practice
- body of standards published by the UK’s Financial Reporting Council
- how company accounts must be prepared
- company accounts must also be prepared in accordance with the law (The Companies Act 2006)
- all listed companies must use IFRS, unlisted companies can choose IFRS or UK GAAP
- FRS 100-106 (depends on size of company)
Generally speaking, most UK companies will use the UK GAAP FRS 102 accounting standard to prepare all financial statements. This is because the requirements are less complex and demanding than the international standards, so the accounts take less time to process and the overall cost is lower.
What is IFRS?
International Financial Reporting Standards
- a standardised way of describing the company’s financial performance and position so that financial statements are understandable and comparable across international boundaries
- IFRS financial statement consists of:
a statement of financial position (balance sheet)
a statement of comprehensive income (inc profit and loss)
a statement of changes in equity
a statement of cash flows
notes, inc a summary of significant accounting policies
- Cash flow statements are presented as follows:
operating cash flows
investing cash flows
financing cash flows - IFRS 16: Property plant and equipment
(either the cost model or the revaluation model) - IFRS 17: Leases
(cost of an investment property held under a lease) - IFRS 40: Investment property
(either the fair value model or the cost model
changes in fair value/gains or losses on disposal recognised in profit or loss)
IFRS Conceptual Framework
- States that the primary purpose of financial info is to be useful to existing and potential investors, lenders and other creditors when making decisions about the financing of the entity and exercising rights to vote on, or otherwise influence, management’s actions that affect the use of the entity’s economic resources;
users base their expectations on returns on their assessment of:
the amount, timing and uncertainty of future net cash inflows to the entity
management’s stewardship of the entity’s resources
- Elements of financial statements:
Asset: a present economic resource controlled by the entity as a result of past events which are expected to generate future economic benefits
Liability: a present obligation of the entity to transfer an economic resource as a result of past events
Equity: the residual interest in the assets of the entity after deducting all its liabilities
Income: increases in economic benefit during an accounting period in the form of inflows or enhancement of assets, or decrease in liabilities that result in increase in equity (not inc contributions by equity participants e.g. owner/shareholders)
Expenses: decreases in assets, or increases in liabilities, that result in decreases in equity (not inc distributions made to equity participants)
What requirements are there around UK company accounts?
UK company accounts
- Companies Act 2006
- Directors must not approve accounts unless they are satisfied they give a true and fair view
- All companies, except small companies, must produce a strategic report
- Directors of all companies have a duty to prepare a directors’ report
- All companies required to file a copy of their accounts and reports with the Registrar of Companies
- Filing of company accounts and deadlines s441-443
What is the CIPFA IFRS-based Code of Practice on Local Authority Accounting?
CIPFA IFRS-based Code of Practice on Local Authority Accounting
- The Chartered Institute of Public Finance and Accounting
- IFRS-based Code of Practice on Local Authority Accounting
- Understanding Local Authority Financial Statements
What are the differences between a balance sheet, profit and loss statement and a cash flow statement?
Balance sheet:
- A financial statement that reports a company’s assets, liabilities and shareholder’s equity at a specific point in time
- A snapshot of what a company owns and owes, as well as the amount invested by shareholders
- Assets (cash, inventory, property)
= liabilities (rent, wages, utilities, taxes, loans)
+ shareholders’ equity (retained earnings)
Profit and loss statement/income statement:
- A financial statement that summarises the revenues, costs and expenses incurred during a specific period
- Provides info about a company’s ability or inability to generate profit by increasing revenue, reducing costs or both
Cash flow statement:
- Summarises the amount of cash and cash equivalents entering and leaving the company
- Measures how well a company manages its cash position (generates cash to pay its debts and fund its operating expenses)
How would you use a balance sheet?
How would you use a profit and loss statement?
How would you use a cash flow statement?
What is an annual return?
All limited companies in the UK must submit an Annual Return form (AR01) to Companies House every year. The Annual Return provides a snapshot of general information about your company, including details of directors and company secretary if you have appointed one, the registered office, share capital and shareholdings.
An Annual Return is a snapshot of certain company information at the anniversary of the limited company’s incorporation. It is a separate document from a company’s annual accounts.
It’s the “confirmation statement”.
What are financial ratios?
What is the acid test / ROCE / working capital ratio / gearing ratio / net assets per share? ???
What is FRS 102?
What changes have been made to it?
How has this impacted upon investment property?
The new UK GAAP standard is FRS 102
It is based on the IFRS for SMEs, a simplified IFRS standard developed by the International Accounting Standards Board for non-publicly accountable entities.
Explain your understanding of the VAT domestic reverse charge for building and construction services.
came into force March 2021
The VAT domestic reverse charge must be used for most supplies of building and construction services.
The charge applies to standard and reduced rate VAT services:
for businesses who are registered for VAT in the UK
reported within the Construction Industry Scheme
Includes:
- constructing, altering, repairing, extending, demolishing or dismantling buildings or structures (whether permanent or not)
- installing heating, lighting, air-conditioning, ventilation, power supply, drainage, sanitation, water supply or fire protection systems in any building or structure
- painting and decorating
Excludes:
- the professional work of architects or surveyors, or of building, engineering, interior or exterior decoration and landscape consultants
The aim of this measure is to combat missing trader fraud in the construction sector in a similar way to the previously introduced domestic reverse charges for the sale of computer chips and mobile phones.
The domestic reverse charge applies to supplies of ‘specified services’ between VAT registered businesses where the recipient then makes an onward supply of those specified services.
The scheme means those supplying construction services to a VAT-registered customer no longer have to account for the VAT.
Instead, the customer accounts for the VAT (that is, it’s considered input tax for them, as if they’ve made the supply to themselves).
In even simpler terms, for services they provide, sub-contractors require the contractor employing them to handle and pay the VAT directly to HMRC.
The payment received is for the cost of the work done (plus materials used), net of any CIS deductions for tax and National Insurance but no VAT will be paid on the invoice.
Is VAT included in financial statements?
VAT is a current liability on balance sheet
VAT not included in profit and loss account
VAT included in cash flow
How are Councils funded? How do budgets work?
Where are LA accounts submitted?
