Accounting Principles and Procedures Flashcards
What business structure is your firm and what are the accounting requirements of that?
What is a balance sheet?
Assets, liabilities and equity
Assesses the companies financial position at a moment in time (usually at the end of the financial year).
Can you give me some examples of assets?
Cash, property, debtors, other investments
Can you give me some examples of liabilities?
Borrowing, overdrafts, loans and creditors
What is a profit and loss account?
Displays the income and expenditure over a period of time, showing profit or loss made.
Is used to show the companies profit margin (how efficiently the company is converting revenue to profit)
What is the difference between an income statement and a profit an loss account?
Nothing, they are the same thing.
What is a cash flow statement?
Cash in and out over a period of time including VAT, broken down into operations, investment and financing. Helps assess liquidity.
What is the difference between a cash flow statement and a profit and loss account?
A profit and loss account measures profitability, while a cash flow statement shows where the money is coming from and where it is going, to show how much cash the firm has at a given point in time.
What has been the recent change to whether leases are included in accounting?
International Financial Reporting Standards (16) now states that leases of over 12 months must be accounted for within balance sheets as a liability.
What rate is corporation tax currently?
19% - charged on profits and any disposals
What is working capital?
Current assets - current liabilities = the amount available to the company day-to-day.
What is a bribe?
The offer, promise, giving, demanding or acceptance of an advantage as an inducement for an action that is illegal, unethical or in breach of trust.
What is corruption?
The misuses of public office or power for private gain. Or the misuse of private power in relation to business practice and performance.
What is money laundering?
Concealing the source of the proceeds of criminal activity to disguise their illegal origin. This may take place through hiding, transferring or recycling illicit money through one or more transactions, or converting criminal proceeds into seemingly legitimate property.
What is terrorist financing?
The solicitation, collection or provision of funds with the intention that they may be used to support terrorist acts or organisations.
How often should you complete due diligence on existing clients?
It is recommended to be every 3 years.
What is a code of behaviour?
Recommended for firms of over 25 employees.
A short document outlining a firms commitment to good ethics and what is expected by those acting for the firm.
When can you accept a gift?
- not made with the intention to influence the recipient
- it is given in the name of a company, not the individual
- it is not cash, or the equivalent (voucher)
- it is appropriate and proportionate the work undertaken
- it is given at the appropriate time (usually after work completed)
- it is given and received openly, not in secret
- it is not about an excessive value (my firm states £100)
- it is not accepted from a government official, politician etc without prior approval from the compliance officer
If you suspect Money Laundering, what is the process of reporting?
My firms Money Laundering policy states that employees should report to the money laundering officer, who will complete a Suspicious Activity Report and submit to the National Crime Agency.
What is tax depreciation?
The declining value of an asset is offset against a companies taxable profit.
Can be applied to things such as plant, buildings and tools etc
What are overheads?
Operating costs of the business that are incurred on an ongoing basis. These can be fixed (rent or insurance) or variable (delivery or utilities)
Name the three different types of accounting ratios?
Liquidity ratios - consider whether an organisation can pay debt and assess the margin of safety
Profitability ratios - the ability to generate profits from sales, so how efficiently is a company generating profit
Gearing ratios - compare capital against debts
Why do businesses need to keep company accounts?
Often required by legislation
Used for tax calculation
Record and measure a companies profitability
Measures business growth
What is financial leverage?
Concept of using borrowed funds to enhance the business operations and increase the companies profitability and rates of return.
What are capital allowances?
Where expenditure is deducted by taxable income, so there is a taxable allowance.
What is a current asset vs a fixed asset?
Current asset = can be converted into cash within on year, so could be money owning to the business for services provided.
Fixed asset = cannot be converted into cash within one year and something the company owns on a long-term basis i.e. vehicles, office furniture, land, buildings.
What are the 2 RICS client money protection schemes?
RICS Client Money Protection Scheme for Surveying services
RICS Client Money Protection Scheme for Property Agents
Please can you outline some of the requirements for handling client money?
- must be a client money account where the firm has exclusive control over it
- account must be authorised by relevant banking regulatory body
- it must not hold any other money, other than that of the clients
- the name of the account must include ‘client’
- client money must be available immediately
- the bank must agree in writing that no money within the client account can be moved or offset to any other account the firm may hold
- where the client would also like access to their money, this must be set up by the client and the firm can only be a signatory
What information must you provide the client when holding their money?
- confirmation that the client money will be held in a client account
- client account details
- confirmation that the firm has exclusive control over the account
- disclosure of all commissions earned by the firm while managing their property
- how unidentified funds are dealt with (if unidentified after 3 years, donate to charity)
What must you obtain before paying anything out of the client account, on behalf of the client?
Written consent.
Also, must check that there is enough money!
