Accounting Principles & Procedures Flashcards
What is the difference between management accounts and audited accounts
Management accounts are prepared for internal use whereas audited accounts are prepared by a chartered accountant
What are the contents of a set of public limited company accounts
Chairman’s statement
Independent auditor’s report
Profit and loss account
Balance sheet
Corporate governance report
Directors remuneration report
What is a balance sheet
A statement of a business’s financial position showing its assets and liabilities at a given date (snapshot in time)
(Formula is assets - liabilities = owner’s equity/book value)
What are examples of assets and liabilities?
Assets - Cash, property, inventory
Liabilities - loan repayments, wages, rent, unpaid invoices
What is a profit and loss account
Financial report showing income and expenses for a given period (usually a year) with a figure showing whether the business currently has a profit or is running a loss
What are examples of income and expenses on a P&L account
Transactions connected with commercial activity of the business
Income - revenue for sale of products/
services
Expenses - operating costs of providing services (labour, overheads etc.), indirect costs like marketing
What is a cash flow statement?
Shows actual receipts and expenditure - ins and outflows including VAT
Shows how liquid a company is
Difference with P&L is shows when expenses are actually incurred/money actually comes in
What is IFRS 16
Change to accounting reporting standards as of 2019 where the full cost of leases have to be accounted for on the balance sheet and obligation to pay rent has to be recognised as a liability (unless lease is 12 months or less)
What is a fixed asset
One which a company plans to use over the long term to aid production e.g. property, equipment
