Accounting Principles and Procedures

Question 1

What is a Balance Sheet?

Answer 1

A financial statement that reports a company’s:

• assets,
• liabilities and
• shareholder equity

at a specific point ,typically annually

• Shows what a company owns and owes and the difference of these is the equity

Question 2

What is a Profit and Loss account?

Answer 2

The profit and loss account is a financial statement that summarises the

• revenues,
• costs and
• expenses

incurred during a specified period

Question 3

What is taxation?

Answer 3

The amount of money or % that is owed to HMRC based on the company profit

Question 4

What is VAT?

Answer 4

• Value Added Tax
• Tax added to most products and services sold by VAT registered businesses and the amount depends on the goods or services
• UK rate is 20 a rise of 2.5 since 2017
• VAT Exemption examples : Property and financial transactions

Question 5

What is revenue?

Answer 5

Income generated by the sales of the product or service

Question 6

What is auditing?

Answer 6

• The term used to describe the examination and verification of a company’s financial records.
• Done to ensure that financial statements are prepared in accordance with relevant accounting standards.
• Prepared internally using GAAP or IFRS and can provide useful info to stakeholders, creditors, customers etc.

Question 7

What is the role of an auditor?

Answer 7

The auditors’ role in a company is to assist the business in maintaining its financial reliability by reviewing and verifying financial statements.

Question 8

What is a Cash Flow Statement?

Answer 8

• Financial report that shows where a business’s money is coming from (inflow) and where it is going (outflow)
• The cash flow statement complements the balance sheet and income statement.

Question 9

What is the difference between a profit and loss account and a balance sheet?

Answer 9

• Profit and Loss shows the income and expenditures of a company and resulting profit and loss
• Balance sheets shows what a company owes (assets) and what it owes (liabilities) at any given point

Question 10

What is UK GAAP and what has it been replaced by?

Answer 10

• Generally Accepted Accounting Principles
• FRS 102

Question 11

What is IFRS?

Answer 11

• International Financial Reporting Standards
• Principles and Rules for the presentation of financial accounts.

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Question 12

What is the difference between UK GAAP and IFRS?

Answer 12

• GAAP is rules based and IFRS is principle based
• UK GAAP is broken up into sections such as FRS 102. Examples of differences include:

1. Leases:

• UK GAAP-
  Under FRS 102, operating leases are recognised straight line through the profit and loss – effectively rent is recognised each year and the asset is not recognised by the company.
• IFRS-
  almost all leases are recognised “on balance sheet” meaning that the asset is capitalised and depreciated over its useful economic life.

Question 13

When should a company be registered for VAT?

Answer 13

• When VAT taxable turnover is greater than £85,000 in the last 12 months or in the proceeding 30 day period.
• So VAT threshold is £85,000

Question 14

Where might you find information on a company’s assets?

Answer 14

• On a Balance Sheet

Question 15

What is profitability?

Answer 15

Measures of an organisation’s profits relative to its expenses

Question 16

What is insolvency?

Answer 16

When a business can no longer meet their financial obligations

ie) Not enough money coming in to match money going out

Question 17

What are company accounts?

Answer 17

Legal requirement submitted to HMRC and is a record of a companies financial performance

Question 18

How would you assess the financial strength of an entity?

Answer 18

• Profitability
• Liquidity
• Solvency

Question 19

Why do companies keep accounts?

Answer 19

• For regulatory purposes
• Keep records of outgoings and in goings
• Compare performances
• Plan for future growth

Question 20

What is meant by the terms Gross and Net?

Answer 20

• Gross: Total salary
• Net: Total salary minus tax and all other deductions

Question 21

Tell me something you understand from the Companies Act 2006?

Answer 21

That companies must provide accounts that gives a true an fair view at the end of each financial year

Question 22

What are assets and liabilities?

Answer 22

• Assets: What a company owns
• Liabilities: What a company owes

Question 23

What is Capital Expenditure?

Answer 23

Money that is used to buy, improve or extend the life of fixed assets

• Property
• Plant
• Infrastructure

Question 24

What kind of business is G&S?

Answer 24

• LLP
• Limited Liability Partnership

Question 25

What type of accounts does an LLP need to submit?

Answer 25

Annually submit:

• Profit and Loss account
• Balance Sheet

Question 26

What is IFRS 16?

Answer 26

• The lease accounting standard all companies must comply with using IFRS
• This essentially brought all leases over a year on to the balance sheet

Question 27

What would you expect to see in the accounts of a PLC?

Answer 27

• Chairman’s statement
• Independent Auditors report
• Income Statement (Profit & Loss account)
• Corporate Governance Report
• Remuneration Report
• Other Statutory info

Question 28

Tell me about Audited Accounts?

Answer 28

• Produced Annually
• Produced by Chartered Account
• For reporting to HMRC or Companies house

Question 29

Tell me about Management Accounts?

Answer 29

• Produced throughout the year
• Internal use
• Not audited
• Gives info on financial accounts for management
• can be used to check potential tenants in a lease

Question 30

What Credit Check Service do you use?

Answer 30

• Dun & Bradstreet
• Done on Financial Strength and Risk
• Risks 1-4 (1 minimal risk, 4 high risk and 5 no result)
• Financial Strength (1A-5A, A-H)

Question 31

What is the current interest rate ?

Answer 31

5.25%