Accounting Principles

Question 1

What are the 3 accounting documents for a firm?

Answer 1

1) Profit / Loss Statement
2) Balance Sheet
3) Cashflow

Question 1

What two accounting documents are statutory?

Answer 1

1) Profit / Loss Statement
2) Balance Sheet

Question 2

What is the difference between a profit / loss statement and balance sheet?

Answer 2

Balance sheet is a snapshot, Profit / Loss is typically over a year.

Balance sheet is summary of capital, current assets and liabilities.

Question 3

What is the difference between Revenue Expenditure and Capital Expenditure (CapEx)?

Answer 3

1) CapEx - Money spent to buy, maintain or improve fixed assets (a building, plant etc)
2) Revenue Expenditure - Operating costs for the day, (rent, salaries etc)

Question 4

What are the typical business structures and their liabilities?

Answer 4

1) Sole Trader - Personally liable
2) Partnership - Personally liable (shared between partner)
3)Limited Company - Limited liability. Personal assets not at risk.
4) Corporation - Acts as it’s own entity

Question 5

Say you set up as a business, what financial measures would you put in place to manage the business?

Answer 5

1) Company Account
2) Accountant
3) Financial statements (balance sheets, cashflow, profit loss statement etc)
4) Payroll

Question 6

Who do you submit tax to?

Answer 6

HMRC
(His Majesty Revenue & Customs)

Question 7

At what point do you start paying VAT?

Answer 7

When the turnover is > £90k.

Question 8

What is the Domestic Reverse Charge (DRC)?

Answer 8

An anti-fraud measure relating to VAT. Rather than the Main Contractor paying VAT to the subcontractor, they pay it straight to HMRC.