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APC Revision > Accounting Principles > Flashcards

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.
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2
Q

What are company accounts?

A
  • Company accounts are prepared for Companies House or HMRC (Her Majesty’s Revenue & Customs)
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3
Q

How often are management account produced?

A
  • They can be produced weekly, fortnightly, monthly, quarterly etc.
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4
Q

How often are Company accounts prepared?

A
  • Annually
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5
Q

What are the three main financial accounts?

A
  • Balance Sheets
  • Profit and Loss Statements
  • Cash Flow Statements
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6
Q

What does a Balance Sheet show?

A
  • It shows your assets and liabilities and shareholder’s/owners’ equity
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7
Q

What is an asset?

A
  • An item of property owned by a person or company.
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8
Q

What is a liability?

A
  • Something that a person or company owes.
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9
Q

Name some assets?

A
  • Land
  • Buildings
  • Stock
  • Fixtures and fittings
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10
Q

Name some liabilities?

A
  • Owners claim against a business
  • Loans
  • Wages
  • VAT
  • Corporation Tax
  • PII Cover
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11
Q

What is a Balance sheet known as?

A
  • A Statement of Financial Position.
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12
Q

Does a balance sheet relate to a period of time or a specific date?

A
  • A snapshot of a given date.
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13
Q

What does a profit and loss statement show?

A
  • A summary of income and expenditure to show a profit/loss.
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14
Q

What are Profit and Loss statements known as?

A
  • An income statement.
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15
Q

Can you draw comparisons between Profit and Loss Statements for different years?

A
  • Yes, as they relate to a specific time period.
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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.
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17
Q

What is a cash flow statement split into?

A
  • Core operations
  • Investing activities
  • Financing activities
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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.
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19
Q

Who are audited accounts prepared by?

A
  • An accountant.
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20
Q

What act are audited accounts required?

A
  • The Companies Act 2006.
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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
Q

What are some common financial measures?

A
  • Acid Test.
  • Return on capital employed.
  • Working capital ratio.
  • Gearing ratio.
  • Net assets per share.
26
Q

What is the acid test (quick ratio)?

A
  • How well are current liabilities covered by cash/liquid assets.
27
Q

What is return on capital employed?

A
  • How profitable is capital invested in business.
28
Q

What is working capital ratio (liquidity)

A
  • Ability of company to pay (solvency).
29
Q

What is gearing ratio?

A
  • Exposure of business to loans as opposed to share capital.
30
Q

What is net assets per share?

A
  • The price which shares can be bought and sold at.
31
Q

What is the most common reason for business failure?

A
  • Cash flow issues.
32
Q

What are the two financial reporting frameworks recognised by UK company law?

A
  • UK GAAP
  • IFRS
33
Q

What does UK GAAP stand for?

A
  • UK Generally Accepted Accounting Principles.
34
Q

What does IFRS stand for?

A
  • International Financial Reporting Standards.
35
Q

Which type of entity must use IFRS?

A
  • Listed Companies.
36
Q

Can other companies choose between IFRS and UK GAAP?

A
  • Yes – But seek advice from an accountant.
37
Q

What is UK GAAP?

A
  • A financial reporting framework for how company accounts are prepared.
38
Q

What is a key change in FRS 102?

A
  • Investment properties held at Fair Value and (unrealised) revaluation movements recorded in income statement.
39
Q

What is a listed company?

A
  • A company that is on a stock exchange.
40
Q

What is the basis for financial reporting under IFRS?

A
  • Fair Value.
41
Q

What is the Red Book definition of fair Value?

A
  • 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
Q

What does IFRS 16 relate to?

A
  • Lease accounting.
43
Q

When did IFRSS 16 come into force?

A
  • 1st January 2016.
44
Q

What are the impacts of changes to IFRS 16?

A
  • 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
Q

When would you want to assess financial strength of an entity as a surveyor?

A
  • Prospective tenants.
  • Profits valuation.
  • Contractors/tenders.
  • Competition assessment.
46
Q

What a typical credit check reports?

A
  • Experian
  • Creditsafe
  • D&B
47
Q

What would you look for in a credit check report?

A
  • Risk assessment.
  • Failure risk score.
  • Financial ratios.
  • Delinquency score.
48
Q

For a typical credit check report, what would be the best financial rating?

A
  • A/1
49
Q

What else would you ask to assess financial strength of an entity, e.g. prospective tenant?

A
  • References, bank, trade, landlord and accountant with 3 years audited accounts.
50
Q

What is the profits test?

A
  • Net profit for proposed business must be 3 x rent for 3 consecutive years or NAV of business must be 5x rent.
51
Q

Why is it important to check financial strength of entities you deal with?

A
  • Assess risk of default and impact on investment security.
52
Q

Do LLP’s pay Corporation Tax?

A
  • No.

APC Revision (32 decks)

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