Accounting Principles and Procedures Flashcards
What is a balance sheet?
A statement showing a company’s assets, liabilities and shareholder’s equity at a specific point in time. It provides a snapshot as to how effectively a company’s management uses its resources.
What is a profit and loss (income) statement?
A statement showing revenues and expenses during a particular period. It is used to assess a company’s ability to generate profit by increasing revenue, reducing costs or both.
What is cash flow and how is it assessed?
Cash flow shows how much cash or cash equivalent is generated and used during a given time period. If more money is coming into the business than is going out of it, cash flow ‘positive’. If more money is going out, cash flow is ‘negative’.
What is the difference between operational and capital expenditure?
- Operational expenditure - money spent on the running costs of a business e.g. wages, rent on premises etc.;
- Capital expenditure - money spent on acquiring and maintaining fixed assets e.g. land, buildings etc.
What is the principal legislation governing accounting reporting in the UK?
The Companies Act 2006.
Under which accounting standard are financial statements/reports prepared?
UK Generally Accepted Accounting Principles (UK GAAP) or International Financial Reporting Standards (IFRS).
What is the difference between GAAP and FRS?
GAAP is rule based while FRS is principal based e.g. stating how transactions should be reported in financial statements. FRS is recognised internationally.
What is VAT?
Value Added Tax - a tax that is charged on most goods and services provided by VAT-registered businesses in the UK.
What are the levels of VAT?
- Standard - 20%;
- Reduced - 5% (converting houses to flats, installing energy saving materials and equipment etc.);
- Zero - 0% (new dwellings, alterations to suit disabled access etc.).
What is Corporation Tax?
A tax paid on profits from doing business as a limited company.
