Accounting Principles and Procedures Flashcards
What is VAT?
Value added tax.
VAT is a consumption tax placed on a product whenever value is added at each stage of the supply chain, from production to point of sale.
What is corporation tax?
Corporation tax is paid by businesses in the UK
It is calculated on their annual profit in a similar way to income tax for individuals
What are management accounts?
Accounts prepared by a company for internal management use, or accounts prepared for a lender, such as a bank to evaluate how the business will repay funding. Management accounts will not be audited externally.
What is an escrow account?
A seperate account owned by a third party and held on behalf of the two other parties.
Can be used as a project bank account.
What is a project bank account?
Bank account that is set up which allows payment to be made directly and simultaneously to the main contractor and other members of the supply chain.
What are business overheads?
The indirect costs or fixed operational costs of a business
Rent / leasing costs
Utility bills
Staff salaries
Insurances
What is the principle of tax depreciation?
The depreciation expense claimed by a taxpayer on a tax return to compensate for the loss in the value of the tangible assets.
What are the 3 types of accounting ratios?
1) Liquidity ratio - the organisations ability to turn assets into cash in order to pay debts
2) Profitability ratio - used to assess a business’s ability to generate earnings relative to its revenue
3) Gearing ratio - measures the proportion of a company’s borrowed funds to its equity
What is financial leverage?
An investment strategy of using borrowed money
What are capital allowances?
The practice of allowing taxpayers to get tax relief on their tangible capital expenditure by allowing it to be deducted against their annual taxable income
What are the 3 key financial statements
Profit and loss account
Balance sheet
Cash flow forecast
What is UK GAAP?
It is short for the UK Generally Accepted Accounting Practice.
It is a regulatory body that establishes how accounts and financial reports should be prepared in the UK
What is CAPEX
Capital Expenditure
It is spent to acquire or improve an asset such as equipment or buildings
What is OPEX
Revenue Expenditure
Costs in the ‘day to day’ running of the business
Why are CAPEX and OPEX split out in business accounts?
They have different tax implications. CAPEX could benefit from capital allowances.
