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:
- 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”.
How would you assess the financial standing of a contractor?
Check their records on Companies House.
What are GAAP?
Generally Accepted Accounting Principles.
A collection of commonly-followed accounting rules/standards for financial reporting.
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.
What is the VAT threshold, the point where businesses must register for VAT?
£85,000 turnover in any 12 month period.
What is required to be submitted annually to Companies House?
Theconfirmation statement.
A document that limited companies and LLPs must file, contains details of its directors and shareholders, LLP lists its members.
Name three items that you would expect to find within a Balance Sheet?
- Current assets e.g. cash,
- Non-current assets e.g. buildings, equipment (inventory) Current liabilities e.g. supplier debts, bank overdraft Shareholder’s equity & Non-current liabilities e.g. financial debts of more than one year
What is the difference between a Cashflow statement and a Balance Sheet?
Acash flow statement = Shows the liquidity of the company - how much cash has entered and exited a business over a given period of time.
Balance Sheet = A snapshot of a company’s finances at a given point in time, shows assets and liabilities.
What is a balance sheet? What did you learn during your CPD on these?
A snapshot of a company’s finances at a given point in time. I learned the difference between a balance sheet and income statement; identify each person’s role in the balance sheet and the income statement; and analyse a balance sheet and an income statement using key indicators.
How does a cash flow forecast differ from a profit and loss sheet?
Acash flow forecastis a plan that shows how much money a business expects to receive in, and pay out, over a given period of time.
Profit and loss or Income statement provides information about a company’s profitability, demonstrating the balance of income vs expenditure.
Why is cash flow important?
Cash is important because it later becomes the payment for things that make your business run: expenses like stock or raw materials, employees, rent and other operating expenses. Naturally, positive cash flow is preferred. Positive cash flow means your business is running smoothly.
What are liabilities?
Liabilities are the creditors’ claims on the resources of a company — what the company owes to banks, bondholders or trade creditors.
What is owners equity?
Owners’ equity is the residual claim on those resources – the company’s “net worth”.
It is the difference (balancing figure) between assets and liabilities and includes accounts such as:
Whats the difference between capital expenditure and operating expenses?
In property accounting, capital expenditures are those costs directly related to the improvement of the property. The operating expenses are those related to the maintenance of the property.
What is NET income?
Once all business transactions have been recorded and classified, businesses will be interested in knowing the amount of money gained or lost after all costs and expenses have been deducted from the total sales.
The resulting figure receives the name of net income and it is also known as the ‘bottom line’.
What is a balance sheet?
The balance sheet presents a company’s financial position at a particular point in time.
It includes a listing of a company’s assets and the claims on those assets (liabilities and equity claims).
What is cash flow statement
The statement of cash flows provides information about the changes in cash and cash equivalents of an entity for a reporting period (net cash flow).
This statement shows separately changes from each business activity, therefore it is split into 3 as per the diagram here.
What is included in a set of company accounts>?
- Chairman’s Statement
- Independent Auditor report
- P&L
- Balance Sheet
- Corporate Governance Report
- Remuneration Report
Statutory information
What is 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).
