Accounting Principles Flashcards
1
Q
What are management accounts?
A
- Management accounts are prepared for the business and can be in the form of:
- Balance Sheets
- Profit and Loss Statements
- Cash flows.
2
Q
What are company accounts?
A
- Company accounts are prepared for Companies House or HMRC (Her Majesty’s Revenue & Customs)
3
Q
How often are management account produced?
A
- They can be produced weekly, fortnightly, monthly, quarterly etc.
4
Q
How often are Company accounts prepared?
A
- Annually
5
Q
What are the three main financial accounts?
A
- Balance Sheets
- Profit and Loss Statements
- Cash Flow Statements
6
Q
What does a Balance Sheet show?
A
- It shows your assets and liabilities and shareholder’s/owners’ equity
7
Q
What is an asset?
A
- An item of property owned by a person or company.
8
Q
What is a liability?
A
- Something that a person or company owes.
9
Q
Name some assets?
A
- Land
- Buildings
- Stock
- Fixtures and fittings
10
Q
Name some liabilities?
A
- Owners claim against a business
- Loans
- Wages
- VAT
- Corporation Tax
- PII Cover
11
Q
What is a Balance sheet known as?
A
- A Statement of Financial Position.
12
Q
Does a balance sheet relate to a period of time or a specific date?
A
- A snapshot of a given date.
13
Q
What does a profit and loss statement show?
A
- A summary of income and expenditure to show a profit/loss.
14
Q
What are Profit and Loss statements known as?
A
- An income statement.
15
Q
Can you draw comparisons between Profit and Loss Statements for different years?
A
- Yes, as they relate to a specific time period.
16
Q
What is a cash flow statement?
A
- A cash flow statement merges balance sheet and income statements to show actual receipts and expenditure including VAT.
17
Q
What is a cash flow statement split into?
A
- Core operations
- Investing activities
- Financing activities
18
Q
Why is cash flow analysis important?
A
- It provides details of income and expenditure.
- Helps on decision making.
- Allows a company to plan ahead.
- It helps with budgeting.
19
Q
Who are audited accounts prepared by?
A
- An accountant.
20
Q
What act are audited accounts required?
A
- The Companies Act 2006.
21
Q
Why are audited accounts beneficial?
A
- Allows access to finance.
- Confirms no material misstatements.
- Better supplier terms.
- Required if business is SOLD.
- Identifies weaknesses.
22
Q
What are typical UK Companies?
A
- Sole Trader
- Limited company
- LLP
- Partnership
- Public Limited Company (PLC)
23
Q
Where is an annual report important for a public limited company?
A
- Shows performance to shareholders and investors.
- Helps potential investors in decision making.
24
Q
What is the benefit of being a Public Limited Company (PLC)?
A
- Audited accounts are publicly available.
- Perceived prestige and status.
25
What are some common financial measures?
* **Acid Test.**
* **Return on capital employed.**
* **Working capital ratio.**
* **Gearing ratio.**
* **Net assets per share.**
26
What is the acid test (quick ratio)?
* **How well are current liabilities covered by cash/liquid assets.**
27
What is return on capital employed?
* **How profitable is capital invested in business.**
28
What is working capital ratio (liquidity)
* **Ability of company to pay (solvency).**
29
**What is gearing ratio?**
* **Exposure of business to loans as opposed to share capital.**
30
What is net assets per share?
* **The price which shares can be bought and sold at.**
31
What is the most common reason for business failure?
* **Cash flow issues**.
32
What are the two financial reporting frameworks recognised by UK company law?
* **UK GAAP**
* **IFRS**
33
What does UK GAAP stand for?
* **UK Generally Accepted Accounting Principles.**
34
What does IFRS stand for?
* **International Financial Reporting Standards.**
35
Which type of entity must use IFRS?
* **Listed Companies.**
36
Can other companies choose between IFRS and UK GAAP?
* **Yes – But seek advice from an accountant.**
37
What is UK GAAP?
* **A financial reporting framework for how company accounts are prepared.**
38
What is a key change in FRS 102?
* **Investment properties held at Fair Value and (unrealised) revaluation movements recorded in income statement.**
39
What is a listed company?
* **A company that is on a stock exchange.**
40
What is the basis for financial reporting under IFRS?
* **Fair Value.**
41
What is the Red Book definition of fair Value?
* **The price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date.**
42
What does IFRS 16 relate to?
* **Lease accounting.**
43
When did IFRSS 16 come into force?
* **1st January 2016.**
44
What are the impacts of changes to IFRS 16?
* **Eliminated off balance sheet lease accounting.**
* **Encouraged short term arrangements as leases under 12 months are exempt.**
* **Affected financial metrics, e.g. gearing ratio EBITDA.**
45
When would you want to assess financial strength of an entity as a surveyor?
* **Prospective tenants.**
* **Profits valuation.**
* **Contractors/tenders.**
* **Competition assessment.**
46
What a typical credit check reports?
* **Experian**
* **Creditsafe**
* **D&B**
47
What would you look for in a credit check report?
* **Risk assessment.**
* **Failure risk score.**
* **Financial ratios.**
* **Delinquency score.**
48
For a typical credit check report, what would be the best financial rating?
* **A/1**
49
What else would you ask to assess financial strength of an entity, e.g. prospective tenant?
* **References, bank, trade, landlord and accountant with 3 years audited accounts.**
50
What is the profits test?
* **Net profit for proposed business must be 3 x rent for 3 consecutive years or NAV of business must be 5x rent.**
51
Why is it important to check financial strength of entities you deal with?
* **Assess risk of default and impact on investment security.**
52
Do LLP’s pay Corporation Tax?
* **No.**
