Accounting Principles And Procedures

Question 1

What is balance sheet?

Answer 1

A financial statement that contains details of a company’s assets or liabilities at a specific point in time.

Question 2

What is a profit and loss statement?

Answer 2

Shows a company’s revenue minus the expenses for running the business

Question 3

What is a cash flow statement?

Answer 3

A financial statement that shows how cash entered and exited a company during an accounting period

Question 4

What is taxation?

Answer 4

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

Question 5

What is revenue?

Answer 5

Income generate by the sales of the product or services

Question 6

What is capital expenditure?

Answer 6

Money spent by a business or organisation on acquiring or maintaining fixed assets such as land, buildings and equipment

Question 7

What is auditing?

Answer 7

The examination and verification of a company’s financial records.

Prepared initially using GAAP or IFRS.

Question 8

What is GAAP?

Answer 8

Generally Accepted Accounting Principles.

Commonly followed accounting rules and standards for financial reporting.

Question 9

What is IFRS?

Answer 9

International Financial Reporting Standards.

Set of accounting standards that govern how particular types of transactions and events should be reported in financial statements.

Question 10

What is ratio analysis?

Answer 10

Method of gaining any insight into a company’s liquidity, efficiency and profitability.

Liquidity ratio - ability to pay off short term debts
Solvency ratio - compare debt levels to assets
Profitability ratio - how well can generate profits
Efficiency ratio - using assets to generate sales and maximise profits

Question 11

What is VAT?

Answer 11

Value Added Tax.

Current at 20% increasing from 17.5% in January 2011

Question 12

What does a balance sheet tell you?

Answer 12

The company’s assets (what they own) and liabilities (what they owe).

Question 13

Difference between profit and loss statement and balance sheet?

Answer 13

Profit and loss shows the profit and loss for a particular period

Balance sheet is the asset and liabilities at given point in time

Question 14

What’s included in a profit and loss statement?

Answer 14

Income, expenditure and any adjustments for liabilities

Question 15

What are management accounts?

Answer 15

Prepared for internal use to control a company activities

Question 16

What are company accounts?

Answer 16

Legally required under the Companies Act 1989.

Show performance over a period, used to help prevent fraud.

Question 17

When should a company be registered for VAT?

Answer 17

Taxable turnover above £85,000

Question 18

Different VAT rates?

Answer 18

Standard 20% - most items
Reduced rate 5% - supplying or installing energy materials
Zero rate 0% - goods for a disabled person in their home

Question 19

What is EBITDA?

Answer 19

Earning Before Tax Interest Depreciation and Amortisation.

Reflects a firms short term operational efficiency

Question 20

What is an auditor?

Answer 20

A person or firm instructed to give a professional and independent review in a company’s financial statement

Question 21

Name 3 of the contents within a set of public limited company accounts

Answer 21

Chairman’s statement
Independent auditors report
Profit and loss account
Balance sheet
Other statutory information

Question 22

Name examples of Assets and Liabilities

Answer 22

Assets - cash, property, land
Liabilities - borrowings, loans, overdrafts and creditors