Accounting principles and procedures Flashcards
What is a “balance sheet”?
Overview of:
- Assets (stuff of value the company owns)
- Liabilities (debts or obligations you need to fulfil in future)
- Equity capital (money collected from owners/investors for stock)
What is a “profit and loss statement/account”?
ICE time!
Financial statement summarising:
- Income/Revenues
- Costs
- Expenses
over a specified time period (usually a year). You can calculate operating profit from it.
What’s the difference between a balance sheet and a profit and loss account?
Balance sheet shows financial position of a company on a specific date.
P&L account shows revenue and expenses over period of time (financial year).
When would use you a “balance sheet” and “profit and loss account”?
When you wanted to understand the assests/liabilities at a particular date, use “balance sheet”.
When you want to know performance of a company over time, use a “P&L account”.
What is “forecast” and “actual” variance analysis? If they differed, what does this say?
The difference in your forecasted budget, and what actually was spent. Could be “favourable”, or “unfavourable”.
If they differ, could say that a marketing campaign worked better than anticipated (favourable), or costs were spent that were not predicted (unfavourable).
How would you assess the financial standing of a contractor?
Check their records on Companies House.
What is UK GAAP?
Generally Accepted Accounting Practice.
A collection of commonly-followed accounting rules/standards for financial reporting in the UK.
There is also the “IFRS” - International Financial Reporting Standards.
What is “ratio analysis”?
A means of evaluating a company’s financial health.
What are “statutory accounts”?
Account statements that MUST be submitted to HMRC. They contain:
- Balance sheet
- Profit and loss account
- Cashflow statement
- directors’ report
What are “management accounts”?
Financial reports produced for business owners, generally monthly or quarterly
- normally a Profit & Loss report and
- a Balance Sheet.
Why is “cashflow” important?
It later becomes the payment for things necessary to make the business run.
What is the VAT threshold, the point where businesses must register for VAT?
£85,000 turnover in any 12 month period.
How long do private and public companies keep accounting records?
3 and 6 years respectively
What taxes do a company pay?
Depending on company structure, could be:
- corporation tax
- income tax
- VAT
- business rates
- Employers’ National Insurance contributions
- capital gains tax
