Accounting Principles and Procedures Flashcards
What is the Purpose of Accounting?
- Tax & Regulatory purposes
- Managers to monitor business’ performance and operational decisions.
- Outside analysts to give investment recommendations on certain companies
What are the 5 basic concepts of accounts
Business Identity
Going concern
Monetary period
Accounting period
Accrual
What is Business Identity?
Treated separately from the owner(s) as far as their financial transactions are concerned.
Personal Transactions not recorded in business acounting books unless adding ot withdrawing resources from the business
What is a going concern?
Assumes entity will continue to operate indefinitely.
Assets are recorded based on their original cost or fair value, and not on a liquidation value or fire-sale prices.
What is a Monetary period?
Transactions expressed in monetary units.
Other types of transactions kept separately as a memorandum
What is an accounting period?
an accounting period in order to complete a cycle of the accounting process
Give me an example of an accounting period
Monthly
Quarterly
Annually
Following a calendar or fiscal year
What is an accrual?
Income recorded when earned and expenses when incurred regardless of when cash is received/ withdrawn
Describe the three main business activities
Operational
Investing
Financing
Describe operational activities
Day to day business functioning – sales of meals/services/manufacturing and lease of a building
Describe investing activities
Acquisition and disposal of long term assets
e.g. purchase of equipment or sale of surplus equipment; purchase / sale of an office building to be used as HQ
Describe financing activities
Obtaining/ repaying capital
Two sources of funds are owners (shareholders) and creditors
Examples: issuing common shares, paying dividends, taking out loans, issuing or replaying bonds
Name the elements included within financial statements
- Assets
- Expenses/Losses
- Liabilities
- Income/Revenue/Gain
- Owners Equity or Capital
Name the two type of assets
Current assets and Non Current Assets
What is the difference between Current Assets and Non Current Assets
Current Assets: Cash & other assets which expect to convert to cash within a year
Non Current Assets: Purchased for long-term use and are not likely to be converted into cash in less than one year
What is PPE?
Property, Plant & Equipment
Can property be deemed a non-current asset?
If not being intended for sale within one year and can be deemed an investment property.
What is a current liability?
An amount owed within one year.
Can you give me an example of a current liability account?
Short-term borrowings and overdrafts,
Creditors and taxes,
Deferred revenue (advance payments)
What is a liability?
Creditors claims on resources of company – what owed to a bank, bondholder of trade creditor
What is a non-current liability?
Long-term financial obligations which are owed later than a year
Can you give me an example of a non-current liability?
debentures and loans, derivatives liabilities, deferred revenue which are due after one year.
What is owner’s Equity?
residual claim on those resources – the company’s “net worth”.
It’s the difference between assets and liabilities.
What else can Owner’s Equity be called?
shareholders’ equity,
stockholders’ equity,
net assets, equity,
net worth,
net book value or
partners’ capital
What do PLC accounts include?
Chairmans Statement;
Independent Auditors report
Income statement (Profit & Loss Account)
Statement of Financial position (Balance Sheet)
Corporate Governance report
Renumeration report
Other statutory information
What is a Balance Sheet?
The Balance Sheet is a statement of financial position
What does the Balance Sheet show?
Assets and liabilities at at given date (us. end of financial year);
ASSETS: cash, property, debtors and other investments held
LIABILITIES: borrowings, overdrafts, loans, creditors
What does the PROFIT & LOSS Account Show?
Summary of businesses income and expenditure transactions, prepared and usually on an annual basis
What are MANAGEMENT ACCOUNTS prepared for?
Internal Use by business and NOT AUDITED
Who are AUDITED ACCOUNTS prepared by?
Chartered or Certified Accountants
What are a consolidated set of accounts?
Comprise of a number of individual subsidiary accounts for a company within a single set of accounts
What is a cash flow statement?
Shows all the actual receipts and expenditure to include VAT
What does IFRS mean?
International Financial Reporting Standards
Where is the IFRS adaopted?
Internationally and required standard by EU Companies
What is IFRS 16?
Lease accounting standards which all companies have to comply with.
What does IFRS 16 mean for the balance sheet?
They have to be fully accounted for on the balance sheet.
Exemptions exist for leases less than 12 months.
Full cost of lease has to be accounted for on the balance sheet
Occupiers obligation to pay rent has to be recognised as a liability.
Service charges would have to be accounted for separately.
