Accounting Principles and Procedures Flashcards
What are the mandatory accounts that all companies must provide?
- Balance sheets
- Profit and loss accounts
- Cash flow statements
As a group these are referred to as the ‘Financial Accounts’
What is a balance sheet?
A snapshot of a companies financial position at a given point in time.
It shows what a company owns (assets) and what is owes (liabilities).
What is a profit and loss statement?
It shows how much net profit a business has made over a given period of time.
What is a cash flow statement?
A financial statement that summarises the amount of cash and cash equivalents entering a company OR expenditure over a period of time.
How does a companies cash flow statement differ from a project cash flow forecast?
A cash flow statement relates to a business cash flow showing the amount of cash entering a business.
A project cash flow forecast highlights the likely expenditure on a project over the course of its duration.
What is the difference between management and financial accounts?
Management accounts;
- Produced for internal purposes and used as a tool to understand how the business is performing.
- Not audited externally.
Financial accounts;
- Required by law and for purposes of tax
- Audited externally
What is UK GAAP?
“Generally accepted accounting practice” -Common set of accounting principles.
What is the current rate of VAT?
Currently the standard VAT rate is 20% however specialist advice should be sought for the purposes of assessing VAT.
Why is it important for business to keep accounts?
- It is a legal requirement under the Companies Act.
- To be able to set financial targets
- Reduce the risk of insolvency
Why is it important to check a contractors financial standing prior to the client entering into a contract with them?
- To protect your client from the contractor failing to perform under the contract.
Name a type of credit check you have carried out?
Obtained a “Dun and Bradstreet” credit rating report on a contractor. This provides a strength rating and indicates the level of risk.
What is an escrow account?
A third party account where funds are kept before they are transferred to the ultimate party.
Which firms need to file accounts with Companies House?
All registered limited companies and LLPs
What is a limited liability partnership?
This is where each partner has limited liabilities i.e. they are not responsible or liable for another partner’s misconduct or negligence.
What is the difference between capital and revenue expenditure?
- Capital - amount spent to acquire or improve an asset such as a building.
- Revenue - day to day running expenses such as the amount to operate the building.
