Accounting Principles and Procedures Flashcards
What is a Balance Sheet?
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
What is a Profit and Loss account?
The profit and loss account is a financial statement that summarises the
- revenues,
- costs and
- expenses
incurred during a specified period
What is taxation?
The amount of money or % that is owed to HMRC based on the company profit
What is VAT?
- 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
What is revenue?
Income generated by the sales of the product or service
What is auditing?
- 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.
What is the role of an auditor?
The auditors’ role in a company is to assist the business in maintaining its financial reliability by reviewing and verifying financial statements.
What is a Cash Flow Statement?
- 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.
What is the difference between a profit and loss account and a balance sheet?
- 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
What is UK GAAP and what has it been replaced by?
- Generally Accepted Accounting Principles
- FRS 102
What is IFRS?
- International Financial Reporting Standards
- Principles and Rules for the presentation of financial accounts.
-
What is the difference between UK GAAP and IFRS?
- GAAP is rules based and IFRS is principle based
- UK GAAP is broken up into sections such as FRS 102. Examples of differences include:
- 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.
When should a company be registered for VAT?
- 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
Where might you find information on a company’s assets?
- On a Balance Sheet
What is profitability?
Measures of an organisation’s profits relative to its expenses
What is insolvency?
When a business can no longer meet their financial obligations
ie) Not enough money coming in to match money going out
What are company accounts?
Legal requirement submitted to HMRC and is a record of a companies financial performance
How would you assess the financial strength of an entity?
- Profitability
- Liquidity
- Solvency
Why do companies keep accounts?
- For regulatory purposes
- Keep records of outgoings and in goings
- Compare performances
- Plan for future growth
What is meant by the terms Gross and Net?
- Gross: Total salary
- Net: Total salary minus tax and all other deductions
Tell me something you understand from the Companies Act 2006?
That companies must provide accounts that gives a true an fair view at the end of each financial year
What are assets and liabilities?
- Assets: What a company owns
- Liabilities: What a company owes
What is Capital Expenditure?
Money that is used to buy, improve or extend the life of fixed assets
- Property
- Plant
- Infrastructure
What kind of business is G&S?
- LLP
- Limited Liability Partnership
What type of accounts does an LLP need to submit?
Annually submit:
- Profit and Loss account
- Balance Sheet
What is IFRS 16?
- The lease accounting standard all companies must comply with using IFRS
- This essentially brought all leases over a year on to the balance sheet
What would you expect to see in the accounts of a PLC?
- Chairman’s statement
- Independent Auditors report
- Income Statement (Profit & Loss account)
- Corporate Governance Report
- Remuneration Report
- Other Statutory info
Tell me about Audited Accounts?
- Produced Annually
- Produced by Chartered Account
- For reporting to HMRC or Companies house
Tell me about Management Accounts?
- 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
What Credit Check Service do you use?
- 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)
What is the current interest rate ?
5.25%
