Accounting Principles and Procedures Flashcards
What is a balance sheet?
Statement of the business’s financial position showing assets and liabilities at a given date.
What is an asset/liability?
Asset – used to produce value e.g property/cash
Liability – legally responsible for something e.g borrowings, loans, overdrafts
What is a Profit and Loss Account?
Summary of a businesses income and expenditure transactions, annual basis
What is a cashflow statement?
Shows all the actual receipts and expenditure including VAT.
What is the difference between financial and management accounts?
Financial Accounts: undertaken by an accountant and are audited by a certified financial accountant
Management Accounts: undertaken for external purposes for the management board
What is a consolidated set of accounts?
Number of induvial subsidiary accounts for a company with a single set of accounts
What do you understand by the term Generally Accepted Accounting Principles (GAAP)
GAAP are a set of standards for financial reporting
Company accounts must be prepared in this way if they are to be shared outside of the company
Within your line of work, what level of tax are you aware of?
SDLT, council tax, VAT, IHT, ATED
You understand companies house, what do you use it for
Companies House is an official government website. Contains info such as company accounts, company info such as number and address, directors or persons with significant control.
What important accountancy changes are you aware of?
How occupiers regard their properties liabilities. IFRS 16 is the lease accounting standards which all companies must comply with when using the International Financial Reporting Standards. The full cost of leases has to be accounted for on the balance sheet. Occupiers’ obligations to pay rent have to be recognized as a liability. Service charge accounted for separately. Exemptions exist for leases 12 months or shorter.
How would you assess the financial strength of an entity, e.g. for a valuation?
You would look at their covenant strength. You would do this by looking at for example either Dun and Bradstreet or Creditsafe.
Look at debt to equity ratio
Can you tell me about a common financial measure?
Revenue - Profit and loss statement
What is the acid test / ROCE / working capital ratio / gearing ratio / net assets per share?
- Acid test = indicator if a business has short-term assets to cover its short-term liabilities
- ROCE = return on capital employed
- Working capital ratio = total assets /current liabilities
- Gearing ratio = compares company debt to equity (how a company is funded)
- Net assets per share = total assets – total liabilities / no. of equity shares
Can you tell me what the role of an auditor is?
An as an external person who undertakes review of business accounts to ensure everything is in line
Tell me what it means to prepare accounts in accordance with IFRS.
International Finance Reporting Standards state how particular types of transactions and other events should be reported in financial statements
When are audited accounts needed and why?
Audited accounts are needed to ensure that companies are essentially doing what they are saying they are doing.
Tell me something you understand from the Companies Act 2006.
Companies Act 2006 is to modernise company law.
* Nominee shareholders can elect to receive company information electronically if they wish.
What is the difference between UK GAAP and IFRS?
GAAP
* rule based
* required if accounts go outside of company
* Allow for last-in, first-out
IFRS
* principles based
* Do not allow last-in, first-out (typically lowers net income)
What is the basis of valuation under IFRS 13?
Fair Value measurement
What is fair value?
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”
What is FRS 102?
Financial reporting standards 102 –
- it sets out the financial reporting requirements for entities that are not applying adopted IFRS
What changes have been made to it?
Requires companies to revalue their tangible fixed assets
* Owner-occupied – existing use value
* Investment properties – market value
What are statutory accounts?
Statutory accounts are financial statements or year-end accounts
Why is good financial record keeping important to you?
Good financial record is important to me because it enables me to see what is coming in each month and for me to keep on top of what the team is billing.
Tell me three ways you ensure that clients’ money is handled properly.
I personally don’t deal with client’s money. However, if I did, I would always adhere to the RICS Professional Standard: Client Money Handling, Oct 2019
* Keep a separate client account
* Clearly named account
* Ensure that they have their monies on demand
RICS Professional Standard: Client Money Handling, Oct 2019
RICS Client’s Money Protection Scheme:
* Surveying services
* Residential services
Explain your understanding of the VAT domestic reverse charge for building and construction services.
Implemented in March 2021 for construction services
The buyer (contractor) accounts for the VAT rather than the supplier. Ensures that VAT is reported correctly by workers.
