Accounting principles and procedures Flashcards
What are the accounting principles?
What is difference between the General Accepted Practice (GAAP) in the UK and International Financial Reporting Standards (IFRS)?
- IFRS gives less details than GAAP
- Smaller companies are exempt from cashflow statements in the UK GAAP, but it is a requirement under IFRS
- GAAP is rules based whereas IFRS is based on principles, so open to interpretation in any given situation
- The GAAP UK version is a UK framework/ standard for accounting and IRFS is an internal framework/standard
What is the difference between management and statutory accounts
a. IFRS gives less details than GAAP
b. Smaller companies are exempt from cashflow statements in UK GAAP, but it is a requirement under IFRS
c. GAAP is rules based whereas IFRS is principles based so is open to interpretation in any given situation
What is a balance sheet?
A Balance Sheet is a statement of the business’s financial position showing its assets and liabilities and can include borrowings, overdrafts, loans and creditors. Usually prepared at the end of a financial year.
What is a Profit and Loss Account
A Profit and Loss Account is a summary of the business’s income and expenditure transactions, prepared usually on an annual basis.
What are the 5 principles of GAAP?
They are:
i. Regularity
ii. Consistency
iii. Sincerity
iv. Prudence
v. Continuity
vi. Full disclosure
What is the IFRS?
International Financial Reporting Standards
What are auditors?
a. Examine financial reports of an organisation
b. Ensure financial records are fair and accurate
What are the management accounts?
a. Not auditable
b. Produced for internal use by business
c. Used to give info on financial accounts for management
Why are accounts audited?
a. Produced annually
b. Prepared by chartered accountant
c. For statutory functions – reporting to companies house and HMRC
What is IFRS 13?
a. Issued in May 2011 by International Accounting Standards Board
b. Sets out a framework for measuring fair value
c. Provides a definition of fair value
d. Fair value = “The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date” – essentially this is an exit price
What is IFRS 16?
a. Came into effect 2019
b. Changed the way lease was recorded on balance sheet
c. Previously, cost of renting property was included on income statement, affecting profit and loss
d. Now a lease is recorded as a depreciating liability on the balance sheet
e. The liability is largest at the start of the lease
What is an asset?
An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit. Can include cash, property, debtors and other investments held
What is a liability?
A liability is something a person or company owes, usually a sum of money. Liabilities can include borrowings, overdrafts, loans and creditors
What is a financial statement
Formal records of the financial activities and performance of a business
