Accounting Principles and Procedures Flashcards
What are the three types of financial statement you may come across relating to a company?
Balance Sheet, profit and loss statement,cash flow statement
What is an asset / liability?
In its simplest form, your balance sheet can be divided into two categories: assets and liabilities.Assets are the items your company owns that can provide future economic benefit.Liabilities are what you owe other parties. In short, assets put money in your pocket, and liabilities take money out!
Can you give me an example of an asset and a liability?
An asset could be a building owned by a company, the liability could be the interest owed on the mortgage on that property or money owed to a supplier
What is the difference between financial and management accounts?
The difference between financial and managerial accounting is thatfinancial accounting is the collection of accounting data to create financial statements, while managerial accounting is the internal processing used to account for business transactions.
What do you understand by the term Generally Accepted Accounting Principles (GAAP)?
It is the body of accounting standards published by the UK Financial Reporting Council.
How do companies know which reporting framework to comply with?
The framework used is typically based on the type of business and where it is located, as well as the applicable laws.
Which reporting framework do public limited companies have to comply with?
IFRS or FRS101
How would you assess the financial strength of an entity, e.g. for a valuation?
A review of the previous financial statements would normally give a good overview of the financial strength of a company
Can you tell me about a common financial measure?
Gross profit margin, net profit margin, working capital
What is the acid test / ROCE / working capital ratio / gearing ratio / net assets per share?
The acid-test, or quick ratio,compares a company’s most short-term assets to its most short-term liabilities to see if a company has enough cash to pay its immediate liabilities, such as short-term debt. ROCE is Return on Capital Employed a financial ratio that measures a company’s profitability and the efficiency with which its capital is employed. Working Capital Ratio is a simple division of total current assets divided against total current liabilities. Gearing is a measure of how much of a company’s operations are funded using debt versus the funding received from shareholders as equity. net assets (total assets on the balance sheet less total liabilities) divided by the number of equity shares in issue.
Can you tell me what the role of an auditor is?
Auditorsinspect organisations’ financial accounts to ensure they’re correct and comply with the law. Auditors review the accounts of companies and other organisations to ensure their financial records are correct and in line with the law.
When are audited accounts needed and why?
An audit is important as itprovides credibility to a set of financial statements and gives the shareholders confidence that the accounts are true and fair. It can also help to improve a company’s internal controls and systems.
How do public limited company accounts differ?
By their nature the accounts are prepared for reading by the public and must be available and returned to companies house once a year
Tell me something you understand from the Companies Act 2006.
Companies Acts set the legal framework in which limited companies must operate in the United Kingdom
Tell me what it means to prepare accounts in accordance with IFRS.
International Financial Reporting Standards (IFRS) area set of accounting rules for the financial statements of public companies that are intended to make them consistent, transparent, and easily comparable around the world. International Financial Reporting Standards (IFRS) are a set of accounting rules for the financial statements of public companies that are intended to make them consistent, transparent, and easily comparable around the world.
