ACCOUNTING

Question 1

What are the three types of financial statements you may come across relating to a company?

Answer 1

Balance sheet - A snapshot of a company’s financial position at a specific point in time. It shows the company’s assets, liabilities,

Income statement (P+L statement) - summarises a company’s revenues, expenses, and profits or losses over a specific period

Cash flow statement - Tracks the inflows and outflows of cash over a specific period

Question 2

What is an asset / liability?

Answer 2

Asset: Anything a company owns that has value and can provide future economic benefits, such as cash, inventory, or property.

Liability: A company’s obligations or debts that it needs to pay in the future, like loans, accounts payable, or mortgages.

Question 3

What is the difference between financial and management accounts?

Answer 3

Financial accounts are made public, includes financial statements like the income statement, balance sheet, and cash flow statement.

Management accounts are internal - often non standardised and relevant to specific business.

Question 4

What do you understand by the term Generally Accepted Accounting Principles (GAAP)?

Answer 4

Generally Accepted Accounting Principles (GAAP) are a set of standardised rules and guidelines used in financial accounting to ensure consistency

Question 5

How do companies know which reporting framework to comply with?

Answer 5

Public companies generally follow IFRS, while private companies may follow GAAP or other national standards.

Question 6

Which reporting framework do public limited companies have to comply with?

Answer 6

Public limited companies (PLCs) must comply with the International Financial Reporting Standards (IFRS).

Question 7

Can you tell me what the role of an auditor is?

Answer 7

The role of an auditor is to independently examine and verify a company’s financial statements to ensure they are accurate, fair, and in compliance with relevant accounting standards.

Only applicable to companies with over 10 mil revenue or 50+ employees

Question 8

Tell me what it means to prepare accounts in accordance with IFRS

Answer 8

it means creating financial statements that follow a set of globally recognized accounting rules

Question 9

Tell me something you understand from the Companies Act 2006.

Answer 9

Governs how companies are formed, operated, and dissolved.

It outlines the legal responsibilities of directors, rules for financial reporting.

One important aspect is that it sets duties for directors to act in the best interests of the company

Question 10

Explain your understanding of the VAT domestic reverse charge for building and construction services.

Answer 10

Tax measure designed to combat VAT fraud in the construction industry

Customers account for VAT rather than the supplier.

Applies to companies signed up for CIS

Question 11

Is VAT included in a balance sheet or a profit & loss account?

Answer 11

VAT affects the balance sheet as it reflects amounts owed to or from HMRC, but does not directly impact the profit or loss figures.

Question 12

How do you account for the impact of inflation when reporting to clients?

Answer 12

Use inflation adjusted figures.

Distinguish between real values and nominal adjusted.

Question 13

What is a profit and loss income statement?

Answer 13

a financial document that summarizes a company’s revenues, costs, and expenses over a specific period, typically a quarter or a year.

Overall income minus operating expenditure.

Question 14

Three types of accounting ratios

Answer 14

• Liquidity ratios - consider an organisations ability to pay their debt obligations and assess its margin of safety by looking at a number of metrics including their operating cash against short term debts

• Profitability ratios - assess an organisations ability to generate profits from its sales operations and shareholding equity. The ratio indicates how efficiently a company is in generating its profit

• Gearing ratios - compare capital within the company against its debts
The gearing is a measure of companies financial leverage and sets out what proportion of the firms activities are funded by shareholders vs its creditor funds.

Question 15

Why does a business keep company accounts

Answer 15

• Record and measure a companies profitability

• Tax calculation including tax calculating taxable deductions

• Legislation requires companies to keep accurate records

• Business Growth is encouraged by identifying profitable operations

Question 16

What is the difference between a current asset and a fixed asset?

Answer 16

• Current assets can normally be converted into cash within one financial year and are regarded as assets that allow day to day operation of the business. Examples may include money owed to the company following sales of its products or services, inventory and prepaid expenses.

• Fixed assets typically cannot be converted into cash within one year. These kind of assets are recorded on a companies balance sheet as fixed assets the company owns on a long term basis. Examples include vehicles, office furniture, machinery, buildings and land.