Accounting Principles and Procedures Flashcards
What are Generally Accepted Accounting Principles (GAAP)?
GAAP are guidelines for preparing accounts in the UK, ensuring consistency and transparency in financial reporting.
What is the difference between Financial Accounts and Management Accounts?
Financial Accounts are required by law, prepared annually, and must comply with accounting regulations.
Management Accounts are for internal use, prepared monthly, and are flexible but not audited.
What is the role of an Auditor in financial reporting?
The Auditor reviews and confirms that financial statements are free from material misstatements, ensuring accuracy and reliability in compliance with legal requirements.
What are the key financial statements and their purposes?
Balance Sheet (Statement of Financial Position): Shows assets, liabilities, and equity at a specific date.
Income Statement (Profit & Loss): Details revenue, costs, and profits over a period.
Cash Flow Statement: Records cash inflows and outflows to show liquidity and cash management.
What are some common financial measures and their meanings?
Acid Test (Quick Ratio): Measures a company’s ability to cover short-term liabilities without relying on inventory.
Return on Capital Employed (ROCE): Evaluates profitability relative to the capital used.
Gearing Ratio: Indicates the proportion of debt in the company’s capital structure, assessing financial risk.
What Is IRR
is a financial metric used to evaluate the profitability of an investment or project. It represents the discount rate that makes the net present value (NPV) of all cash flows (both positive and negative) from the investment equal to zero.
