Accounting Principles

Question 1

What is a profit & loss statement?

Answer 1

A profit & loss statement shows the income and expenditure of a company over a set period of time (normally the financial year).

Question 2

What two kind of accounts do companies have to produce?

Answer 2

1. Financial accounts: External accounts and issued to HMRC & Companies House (for external stakeholders.
2. Management accounts: Internal accounts for internal use (any format, any time). Financial reports used for business owners and managers. Not required by law.

Question 3

What are the Generally Accepted Accounting Principles (GAAP)?

Answer 3

Standards that incorporate the complexities and legalities of corporate business accounting

Question 4

What are the principles under the GAAP?

Answer 4

Regularity
Consistency
Continuity
Periodicity
Good faith

Question 5

What is a balance sheet?

Answer 5

A balance sheet is a document which shows the assets and the liabilities of a company at a given point in time.

Question 6

What information would you be expect to find in a financial account produced by a company?

Answer 6

Directors report
Cash flow statement
Balance sheet
Profit & loss statement