Accounting Principles

Question 1

What are the three key financial statements?

Answer 1

1. balance sheet
2. profit and loss statement
3. cash flow

Question 2

What is a balance sheet?

Answer 2

1. shows assets and liabilities of the business
2. assets including office, wtw, wwtw, land
3. liabilities - rates, tax, salaries
4. a snapshot of a specific time

Question 3

What is a profit and loss statement?

Answer 3

1. income v. expenditure

Question 4

What is a cash flow?

Answer 4

1. shows cash moving in and out of a company for a specific period
2. generally broken down into cash relating to operations, investment and financing
3. shows the net cash-flow position, which helps assess liquidity and shows changes in assets, liabilities and equity

Question 5

What is the difference between balance sheet and P&L?

Answer 5

1. balance sheet is a snap shot of overall business whereas P&L is a statement of income v. expenditure

Question 6

What is IFRS?

Answer 6

1. international financial reporting standards
2. brought all leases of more than 12 months long on to the balance sheet to ensure accurate reporting of lease transactions
3. allows more accurate analysis of cash flows

Question 7

What does GAAP stand for?

Answer 7

1. generally accepted accounting practice

Question 8

What is the role of the auditor?

Answer 8

1. to check the financial accounts of a company are fair and true

Question 9

What is equity?

Answer 9

Value that the owner has in the business, can be calculated by deducting total liabilities from total assets on a company balance sheet