Accounting principles and procedures (Level 1)

Question 1

Three types of financial statement?

Answer 1

• Balance Sheet
• Profit and Loss Account
• Management Accounts

Question 2

What is an asset / liability?

Answer 2

Assets are resources (tangible and intangible) that your business owns.
Asset: Cash, Property, Debtors

Liabilities are your business’ debts or obligations which you need to fulfil in the future.
Liabilities: Borrowings, overdrafts, loans and creditors

Question 3

Difference between financial and management accounts?

Answer 3

Management accounts are for internal purposes and are not audited.

Question 4

Generally Accepted Accounting Principles (GAAP)?

Answer 4

• financial reporting framework adopted by some companies in the UK. It is issued by the Financial Reporting Council and has seven Financial Reporting Standards (FRS): 100, 101, 102, 103, 104 and 105.

Question 5

How do companies know which reporting framework to comply with?

Question 6

How would you assess the financial strength of an entity e.g for a valuation?

Question 7

A common financial measure?

Question 8

What is the acid test / ROCE / working capital ratio / gearing ratio / net assets per share?

Question 9

Role of an auditor?

Question 10

When are audited accounts needed and why?

Question 11

How do public limited company accounts differ?

Question 12

Companies Act 2006?

Question 13

What does it mean to prepare accounts in accordance with IFRS?

Answer 13

• IFRS 16 lease accounting standard
• full cost of leases to be accounted for on the balance sheet.
• Occupiers obligation to pay rent has to be recognised as a liability

Question 14

Difference between UK GAAP and IFRS?

Question 15

Basis of valuation under IFRS 13? and what is fair value?

Answer 15

IFRS 13 defines fair value as 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 (an exit price)

Question 16

What is the difference between a company account and a client account?

Answer 16

Client
- Separate
- If discrete then has Client name in account
- Have to be reconciled
- Cannot go overdrawn

Question 17

Who is the Money Laundering Reporting Officer in your firm?

Answer 17

• Alasdair Dunne
• oversee all aspects of our anti-money laundering functions and
  ensure that any actual or suspected case of money laundering is reported to NCA with immediate effect.

Question 18

What are the Generally accepted accounting principles (GAAP)?

Answer 18

• Standards that encompass the details and legality of corporate accounting.

Question 19

What are management accounts?

Answer 19

Detailed report of a business financial health and operational efficiency. Projections.

Question 20

When should management accounts be prepared?

Answer 20

Prepared monthly or quarterly.

Question 21

What are annual accounts for a private limited company?

Answer 21

Summary of an organisations financial activity over a 12month period.
Prepared every year including, balance sheet profit and loss statement and cash flow statement.

Question 22

What is a balance sheet?

Answer 22

Snapshot of assets and liabilities plus shareholders equity at a specific moment in time.
What’s owned by what’s owed/

Question 23

On a balance sheet, what is an asset?

Answer 23

Something that is owned by your organisation.
Land, property and vehicles.
Stock, petit cash, cash in bank.

Question 24

On a balance sheet, what is a liability?

Answer 24

Obligation (debt) that will need to be repaid.

Question 25

What is a profit and loss statement?

Answer 25

Records performance over a period of time.
Includes total revenue and total expenses through financial year.

Question 26

What is a cash flow statement?

Answer 26

Explains cash movements in the business over the financial year.

Question 27

When is a statutory financial audit required?

Answer 27

Annual independent inspection of company accounts, required by law.
Done by registered auditor.

Exception: if company is below threshold.