Accounting Principles and Procedures Flashcards
What are the three types of financial statement you may come across relating to a company?
Balance Sheet
Income Statement
Cashflow forecast
What is a balance sheet?
shows a company assets and liabilities & shareholder equity
What is an income statement?
profit and loss account
What is a Cash flow statement?
summaries a companies income and out goings over a period of time
What is an asset/liability?
an asset is a resource that the company owns/controls
a liability is a debt or financial obligation that a company owes to another entity
Can you give me an example of an asset?
Livestock
Cash in bank
Supplies
Can you give me an example of a liability?
debts
loans
wages
What do you understand by the term Generally Accepted Accounting Principles? GAAP
a set of accounting rules companies use when preparing their financial statements
What are the main GAAP principles?
- Consistency
- Periodicity
- Materiality
- Continuity
- Non-compensation
- Regularity
- Continuity
How do comapnies know which frame work to comply with?
dependent on how the company is registered with Companies hosue
Which reporting framework do public limited companies have to comply with?
International financial reporting standarfs
How would you assess the financial strength of an entity e.g. for a valuation?
- Study their financial statements
Can you tell me about a common financial measure?
working capital ratio measures liqudity of a business
current assets - current liabilities = working capital
current assets/current liabilities = working capital raito
What is liquidity?
how easil a company can convert assets into cash to pay short term obligations
What is the Acid test?
measure of liquidty
represents a companies ability to pay current liabilities with assets than can be coverted to cash quickly
calc
current assets - inventory pre paid expenses/current liabilities
What is the ROCE?
Return on capital employed
Measures how well a company uses its capital to generate profits
divide earnings (before tax) by capital spent
What is gearing ratio?
measures how much debts a company uses to finance its operations
measurs financial risk & stability
25 - 50% normal high is more risky
deivide total debt by total shareholder equity
What is the net assets per share fianancial measure?
represents the value per share of a mutual fund or etf
divide net asset by number of equity shares
Can you tell me what the role of an audior is?
obtain reasonable assurance about wheather the financial statements as a whole are free from material misassessment
When are audited accounts needed and why? (ltd)
if turnover is more than 10.2 mil
assets are worth more than 5.1 mil
if more employees than 50
at least 2 of these
protect from fraud
How do public limited company accounts differ? (plc)
They are always required to have an audit regardless of threshold
Tell me something you understand from the companies act 2006.
- private companies no longer require an AGM or a company secretary
- longest act ever passed
Tell me what it means to prepare accounts in accordance with the IFRS.
The goal of the IFRS is to create a common acconting language that can be understood globally
What is the different between the UK GAAP and the IFRS?
GAAP is uk base IFRS is global
GAAP financial reporting for measurement of financial position
IFRS is trying to make everything the same across the world
What is the basis of valuation under the IFRS 13?
Fair value
What is fair value?
the price that would be received to sell an asset or or paid to trasnfer a liability in an orderly transaction between market participants at the measurement date
What are statutory accounts?
a set of financial reports that summarise a companies financial perforamce over a period of time they are prepared at the end of the companies financial year and submitted to HMRC
Why is good financial record keeping important to you?
- helps provide an overview of the business
- good record keeping makes viewing of information quicker, easier and less time consuming
- less chance of thinks being incorrect
Tell me three ways you ensure that client’s money is handled properly
- ensure record is kept of all client money held
- ensure client has access to funds
- ensure client money dealt with by a responsible principle
What RICS guidance or schemes do you adhere to in ensuring client money is handled properly.
RICS client money handling 1st ed
Client Money Protection Scheme
Talk me through what you would find in farm income accounts.
income - sale of livestock/crop/straw
cost - vet/med, feed, fert seed sprays
What issues might you encounter in farm accounts?
- missing information
- cash flow forecasting = poor cash flow in some months
- undervaluing of labour
What factors affect profit and loss in farm accounts?
profit
- market prices
- weather/yield
- location
- quality of product
- cropping cycle
Cost
- market costs
- weather/yield
- cropping cycle
What government subsidy schemes are you aware of?
Basic payment scheme
How do significant dates and livestock ages relate to farm accounts
significant dates
- english quarter days (rent)
- BPS / scheme payment dates
livestock ages
- value of stock
- period on holding
What do you understand by the UK Farm classification?
groups types of farms together based on type of farm (product) and size of farm to help with agricultural analytics
What would you find the farm business survey?
information on the financial, physical and econominc performances of farm business in the UK,
Tell me about your understanding of gross margins in farm accounts.
shown in the P&L account - shows the income and expenses to provide GM
What RICS guidance relates to farm stocktaking valuations?
RICS Farm Stocktakng Valuations 2nd Ed
When may a farm stocktaking valuation be required?
end of financial year
What is the purpose of a farm stocktaking valuation?
identify and carry forward costs that were incurred before the start of the new fiancial year but did not give rise to income until after the year end
What is the basis of value of a farm stocktaking valution?
fair value less costs to sell
