Accounting principles and procedures

Question 1

Describe the Generally Accepted Accounting Principles

Answer 1

• Body of accounting standards published by the UK’s Financial Reporting Council
• Establishes how company accounts must be prepared

Question 2

What is the difference between management accounting and financial accounting?

Answer 2

• Financial accounting is the collection of accounting data to create financial statements
• Managerial accounting is the internal processing used to account for business transactions

Question 3

What statutory accounts must firms submit?

Answer 3

• A set of financial reports prepared at the end of each financial year.
• All private limited companies are required to prepare statutory accounts.

Question 4

If you owned your own firm, what accounting principles and procedures would you have in place?

Answer 4

• Follow GAAP

- Include balance sheet and profit/ loss account

Question 5

Who do you submit them to?

Answer 5

• Shareholders (if any)
• Companies House
• HMRC

Question 6

Why is cash flow important?

Answer 6

Ensures the business has enough cash to carry on trading and covering its costs with the revenue streams

Question 7

Why would you not apply tax to invoices?

Answer 7

• Product may not set as taxable

- Company may be tax exempt

Question 8

When would you apply tax?

Answer 8

If you are selling physical goods and have a sales ID number for the transaction

Question 9

What is the current level of tax?

Answer 9

• Corporation rate 19%

- Oil companies/ extraction are ring fenced companies - can claim relief on profits

Question 10

What happens in the event of insolvency?

Answer 10

-A company is insolvent when it cant pay its debts

• Informal agreement with Creditors
• Company Voluntary agreement (agreement to pay debts over an agreed period)
• Administration (Handing over company to administrator to find a a way out)