Accounting Principles and Procedures

Question 1

What is the Purpose of Accounting?

Answer 1

• Tax & Regulatory purposes
• Managers to monitor business’ performance and operational decisions.
• Outside analysts to give investment recommendations on certain companies

Question 2

What are the 5 basic concepts of accounts

Answer 2

Business Identity
Going concern
Monetary period
Accounting period
Accrual

Question 3

What is Business Identity?

Answer 3

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

Question 4

What is a going concern?

Answer 4

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.

Question 5

What is a Monetary period?

Answer 5

Transactions expressed in monetary units.
Other types of transactions kept separately as a memorandum

Question 6

What is an accounting period?

Answer 6

an accounting period in order to complete a cycle of the accounting process

Question 7

Give me an example of an accounting period

Answer 7

Monthly
Quarterly
Annually
Following a calendar or fiscal year

Question 8

What is an accrual?

Answer 8

Income recorded when earned and expenses when incurred regardless of when cash is received/ withdrawn

Question 9

Describe the three main business activities

Answer 9

Operational
Investing
Financing

Question 10

Describe operational activities

Answer 10

Day to day business functioning – sales of meals/services/manufacturing and lease of a building

Question 11

Describe investing activities

Answer 11

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

Question 12

Describe financing activities

Answer 12

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

Question 13

Name the elements included within financial statements

Answer 13

• Assets
• Expenses/Losses
• Liabilities
• Income/Revenue/Gain
• Owners Equity or Capital

Question 14

Name the two type of assets

Answer 14

Current assets and Non Current Assets

Question 15

What is the difference between Current Assets and Non Current Assets

Answer 15

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

Question 16

What is PPE?

Answer 16

Property, Plant & Equipment

Question 17

Can property be deemed a non-current asset?

Answer 17

If not being intended for sale within one year and can be deemed an investment property.

Question 18

What is a current liability?

Answer 18

An amount owed within one year.

Question 19

Can you give me an example of a current liability account?

Answer 19

Short-term borrowings and overdrafts,
Creditors and taxes,
Deferred revenue (advance payments)

Question 20

What is a liability?

Answer 20

Creditors claims on resources of company – what owed to a bank, bondholder of trade creditor

Question 21

What is a non-current liability?

Answer 21

Long-term financial obligations which are owed later than a year

Question 22

Can you give me an example of a non-current liability?

Answer 22

debentures and loans, derivatives liabilities, deferred revenue which are due after one year.

Question 23

What is owner’s Equity?

Answer 23

residual claim on those resources – the company’s “net worth”.
It’s the difference between assets and liabilities.

Question 24

What else can Owner’s Equity be called?

Answer 24

shareholders’ equity,
stockholders’ equity,
net assets, equity,
net worth,
net book value or
partners’ capital

Question 25

What do PLC accounts include?

Answer 25

Chairmans Statement;
Independent Auditors report
Income statement (Profit & Loss Account)
Statement of Financial position (Balance Sheet)
Corporate Governance report
Renumeration report
Other statutory information

Question 26

What is a Balance Sheet?

Answer 26

The Balance Sheet is a statement of financial position

Question 27

What does the Balance Sheet show?

Answer 27

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

Question 28

What does the PROFIT & LOSS Account Show?

Answer 28

Summary of businesses income and expenditure transactions, prepared and usually on an annual basis

Question 29

What are MANAGEMENT ACCOUNTS prepared for?

Answer 29

Internal Use by business and NOT AUDITED

Question 30

Who are AUDITED ACCOUNTS prepared by?

Answer 30

Chartered or Certified Accountants

Question 31

What are a consolidated set of accounts?

Answer 31

Comprise of a number of individual subsidiary accounts for a company within a single set of accounts

Question 32

What is a cash flow statement?

Answer 32

Shows all the actual receipts and expenditure to include VAT

Question 33

What does IFRS mean?

Answer 33

International Financial Reporting Standards

Question 34

Where is the IFRS adaopted?

Answer 34

Internationally and required standard by EU Companies

Question 35

What is IFRS 16?

Answer 35

Lease accounting standards which all companies have to comply with.

Question 36

What does IFRS 16 mean for the balance sheet?

Answer 36

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.