Accounting Principles and Procedures

Question 1

What does a set of company accounts typically contain?

Answer 1

CAISO

• Chairman’s statement
• Auditors report
• Income statement (profit & loss account)
• Statement of financial position (balance sheet)
• Other statutory information (Equality report etc)
• Corporate governance report
• Remuneration report

Question 2

What are financial statements?

Answer 2

Written records that convey business activities and financial performance of a company.

Question 3

What is IFRS 16 and why does it matter to property?

Answer 3

IFRS 16 came into effect in 2019
Changed the way a lease was recorded on a balance sheet from a cost on the income statement to a depreciating liability on the balance sheet.

Lease is not included in IFRS 16 if shorter than 12 months.

Question 4

Who is qualified to advise on financial matters?

Answer 4

A chartered accountant

Question 5

How do a Balance Sheet and Profit and Loss statement differ?

Answer 5

Balance Sheet - Shows the financial position of assets and liabilities at a point in time.

Profit and Loss - Summary of business’ income and expenditure - usually on an annual basis.

Question 6

What is the difference between underlying profit and statutory profit?

Answer 6

Underlying is based on usual revenue and expenditure.

Statutory includes exceptional costs such as acquisition of a new business.

Question 7

What does a Dun and Bradstreet report show?

Answer 7

Assessment of a company’s financial strength showing how the investment market would view the information.

• Only Chartered Accountant can judge a company’s overall financial position.

Question 8

What does a Dunn and Bradstreet rating mean?

Answer 8

5A-G is financial strength (tangible net worth)

1-4 is risk indicator (probability of failure)

Question 9

What was your firm’s revenue and underlying profit last year?

Question 10

Who’s your firm’s chairman?

Question 11

What are the key financial statements that companies provide?

Answer 11

• Profit and loss accounts
• Balance sheets
• Cash flow statement

Question 12

What is the difference between management and financial accounts?

Answer 12

Management accounts - internal use of the management team

Financial accounts - company accounts that are required by UK law

Question 13

What is a cash flow statement?

Answer 13

Summary of the actual or anticipated ongoing and outgoing of cash in a firm over the account ting period

Measures short term ability of a firm to pay off bills

Question 14

What is meant by a Capital Allowance?

Answer 14

Tax relief on certain items purchased for the business for example tools and equipment.

Question 15

What is meant by a sinking fund?

Answer 15

Funds set aside for future expense or long term debt

Question 16

What is meant by insolvency?

Answer 16

An inability to pay debts where liabilities exceed assets

Question 17

What is Companies House?

Answer 17

An agency that incorporates and dissolves limited companies within the United Kingdom

Question 18

What are Liquidity ratios?

Answer 18

Liquidity ratios measure the ability of a company to pay off its current liabilities by converting its current assets into cash.

Current assets/Current liabilities

Question 19

What are profitability ratios?

Answer 19

Profitability ratios measure the performance of a company in generating its profits.

Question 20

What are financial gearing ratios?

Answer 20

Measure the financial structure of the company which are crucial indicators for the external suppliers of debt and equity as well as for internal management.

Question 21

When have you used financial accounts in your work?

Question 22

What is the accruals concept?

Answer 22

Fundamental concept in accounting

Income is recorded when earned, not when received and expenses are recorded when incurred, not when paid.

Question 23

What is the difference between UK GAAP and IFRS?

Answer 23

GAAP is rules based while IFRS is principles based.