Accounting Principles Flashcards
- What do you understand by the term liquidity?
o Liquidity refers to the ease with which an asset can be converted into cash without significantly affecting its market value. It measures a company’s ability to meet its short-term financial obligations.
- What does a balance sheet tell us?
o A balance sheet provides a snapshot of a company’s financial position at a specific point in time. It shows the company’s assets, liabilities, and shareholders’ equity, giving an overview of what the company owns, owes, and the net value of shareholders’ investments.
- Examples of fixed assets please?
o Examples of fixed assets include buildings, machinery, vehicles, land, and equipment that a company uses for its operations and does not intend to sell in the short term.
- How does a business make a profit?
o A business makes a profit when its total revenue from sales exceeds its total expenses. Profit is the difference between revenue and costs.
- When would you use a P&L over a balance sheet?
o A Profit and Loss (P&L) statement is typically used to assess a company’s financial performance over a specific period, such as a month, quarter, or year, and provides details on revenue, expenses, and profit or loss. A balance sheet, on the other hand, offers a snapshot of the company’s financial position at a single point in time.
- What details usually form company accounts?
o Company accounts usually include financial statements like the balance sheet and P&L statement, notes to the financial statements, cash flow statements, and disclosures, along with an auditor’s report, director’s report, and any other relevant documents depending on local regulations.
- How does a business take money out of a business?
o A business can take money out through various means, such as paying dividends to shareholders, owner’s withdrawals, or by selling assets. It depends on the business structure and its financial health.
- How is money and accounts regulated?
o Money and accounts are regulated by financial authorities and governing bodies specific to each country. Regulations ensure transparency, accurate financial reporting, and adherence to accounting standards. In the UK, for example, the Financial Reporting Council (FRC) regulates financial reporting and auditing standards.
