Accounting Principles Flashcards
What are the different accounting techniques?
- Cash accounting - when the cash enters and leaves
- Acurral accounting - on transaction dates
What is an accrural?
Something which has been done but not yet invoiced.
What is a balance sheet / statement of financial position?
A statement of a companies financial position at a given point in time.
Important tool to assess a company’s strengths and weaknesses.
What does a balance sheet / statment of financial position show?
- Assets
- Liabilities
Why would you look at a balance sheet / statment of financial position?
To assess the financial strength of a business.
What is a profit and loss account?
A summary of a business’ income and expenditure transactions, prepared on an annual basis.
Informs stakeholders of the performance of a business as defined by income, costs and profit.
What is included in the profit and loss statement for your department?
- departments income
- outgoings i.e. staffing, office costs
Allows us to understand our profit, and profit margin. Prepared and produced on a quarterly basis.
Where would you find the debitors and creditors?
On the balance sheet as trade debtors and trade creditors.
What is a cash flow statement?
Shows how the cash of a business was operated and spent over the last year, including VAT.
- operating activities
- investing activities
- financial activities
What is IFRS?
International Financial Reporting Standards
- Standards based approach
- International
- Companies that are publicly traded on the stock exchange must follow IFRS, otherwise can to follow GAAP
What other reporting standards are there?
Generally Accepted Accounting Principles (GAAP)
UK GAAP
What is GAAP?
- rules based
- primarily used in US
What is UK GAAP?
- Rules based approach
- FRS 102 used for companies not following IFRS
How do management accounts differ from company accounts?
Company accounts are a statutory requirement and offer a financial overview of a business. Prepared annually and are audited.
Management accounts are prepared for internal use by a business and are not audited.
What is in a statutory financial statement?
- written reports
- profit and loss account (income statement)
- balance sheet (statement of financial position)
- cashflow statement (statement of cashflow)
What is in a written report?
Directors report on how the business has been performing.
What contents are within a PLC accounts report?
- Chairman’s statement
- Independent auditor’s report
- Income statement (profit and loss account)
- Statement of financial position (balance sheet)
- Corporate governance report
- Remuneration report
- Other statutory information.
Are you aware of any recent accountancy changes?
Yes, IFRS 16 is the lease accounting standard with which all companies have to comply when using the international Financial Reporting Standards.
The full cost of leases has to be accounted for on a balance sheet.
Rent is a liability.
Exemptions exist for leases of 12 months or shorter.
Why is it important to keep accurate accounts?
- Allows you to understand the performance of your business
- To comply with legislation - you can be penalised for not keeping adequate records or producing incorrect tax returns
What would happen if a company didn’t keep accurate accounts?
- Harder to make spending decisions / budgeting
- Lead to fraud
- Reputation may lower
- Penalties from HMRC for carelessness
Why must an RICS member/Firm manage their finances appropriately?
Rules of Conduct for both Members and Firms requires ‘Solvency’.
