Accounting Principles and Procedures Flashcards
What are the three types of financial statements relating to a company?
Balance Sheet
Profit and Loss accounts
Cash flow statements
What is a balance sheet?
also known as a statement of financial position
Shows what a company owns (assets) and owes (liabilities) at any given date (usually at the end of the financial year)
Assets e.g.: cash, debtors, property
Liabilities e.g.: borrowings, overdrafts, loans and creditors
What is a Profit and Loss account?
As summary of the incomes and expenditures of a company resulting in a profit or loss. Normally done on an annual basis
What is a cash flow statement?
Helps creditors determine how much cash (liquidity) is available for the company to fund is operational expenses and pay down on debts
What is the difference between management accounts and financial accounts?
Management accounts are for internal use of the management team
Financial accounts are company accounts that are required by law
What do you understand by Generally Accepted Accounting Principles (GAAP)?
It is a set of accounting rules and procedures used to standardise financial reporting practices. Following GAAP guidance ensures accuracy, consistency, and transparency of financial disclosure
How do companies know which reporting framework to comply with?
Companies Act 2006
RICS Valuation Global Standard: UK National Supplement 2018
What do you understand from Companies Act 2006?
It demands that all UK businesses prepare their financial statements to accounting standards set by GAAP or International Accounting Standards Community (IASC).
Most UK companies use GAAP as the requirements are less demanding and complex than the International standard
What do you understand from RICS Valuation Global Standards: UK National Supplement (2018)?
VPGA 1 relates to valuations for financial reporting. It sets out two financial reporting frameworks adopted by UK companies: IFRS and GAAP. PLCs must use IFRS but can use GAAP for individual parent company accounts.
What is one way you can assess the financial strength of an entity?
Financial Gearing Ratio
It is an indicator of the financial risk associated with a company. it acts as an indicator of debt and equity to help manage insolvency
What is an auditor?
A person who is certified by the Regulatory Authority of Accounting and auditing
They are appointed by a company to ensure their financial statements are free from material mis-statements due to fraud/error and to issue an auditors report that includes an auditors opinion (management accounts don’t get audited)
How do you prepare accounts in accordance with IFRS?
*Chairmans Statement
*Independant auditors report
*Income statement (profit and loss account)
*Statement of financial position (balance sheet)
*Corporate governance report
*Other statutory information
What is the basis of value under IFRS 13?
Fair Value.
The price that would be paid to receive or sell an asset or transfer a liability in an orderly transaction between market participants at the measurement date
It is often used to gauge the true worth of an asset by looking at factors like potential for growth and replacement costs
What is FRS 102?
It is designed to apply to general purpose financial statements and financial reporting of entities that are not constituted as companies and as not for profits
What is the difference between a creditor and a debtor?
Creditor is an entity that is owed money by another entity they extended credit to. E.g.: a client owes you fees for your services so you are the creditor to your client
Debtor is an entity that owes credit to another entity. E.g.: the client that owes you the fees as they arr in debt to you
