Accounting Principles & Procedures Flashcards
What is PLC?
Public Limited Company
A company which has shares that can be purchased by the public - shares are publicly traded
What are PLC accounts made up of?
**Strategic Report **
- Chairman letter
- Business model
- KPIs
- Sustainability
- Risk report
Governance
- Board of Directors
- Governance report
- Directors renumeration
- Directors report
Financials
- Independent Auditors report
- Company accounts
- Notes on accounts
- 4 or 5 year summary
What is a private limited company
Most common form of Uk company incorporation.
- Any type of business entity in ‘private’ owenership
What is a limited liability partnership
Business partnership structure where each partners liabilties are limitd to the amount they put into the business
What is the blance sheet also known as?
Statement of financial position
What is the cash flow statement also known as?
Statement of cash flows
What is the profit and loss statement also known as?
Income statement
What is the main difference between IFRS and UK GAAP?
IFRS is mandatory for consolidated financial statements (group company financial statements) and is more complex than UK GAAP.
Also mandatory if it reports internationally
- UK GAAP is more cost-effective and is more commonly used amongst small and medium sized enterprises (SMEs)
What are consolidated financial statements?
Financial statements of a group company (entity with multiple subsidiaries)
What is GAAP
- Generally Accepted Accounting Principles .
- Standards that encompass the details, complexities and legalities of business accounting.
- Improves the clarity of communication of financial information
What is included in the Company accounts set out in companies act 2006
- Cover page,
- information and contents page,
- directors report,
- Profit and loss account,
- Balance sheet,
- notes to/from accountant
Principles of GAAP
- Regularity,
- Consistency,
- Sincerity,
- Permanence,
- Non-compensation,
- Prudence,
- Continuity,
- periodicity,
- materiality,
- good faith
Types of asset
Assets:
- Cash,
- real estate,
- trademarks,
- patents,
- marketable securities
Types of liabilities
Liabilities:
- money owed to supplier,
- wages/payroll,
- bank debt,
- taxes owed
What’s the role of an auditor
To inspect and evaluate accounts to ensure they are correct and compliant with the law
What is UK GAAP?
A common set of accpeted accounting principles standards and procedures that companies and accountants must follw when they compile their financial statemnets. It improves the clarity of the communication of financial information.
What are IFRS?
These are the international financial standards all euopean companies must comply with when preparing their accounts. UK businesses on stock exhcnage must comply. All EU companies must report under IFRS and UK companies on stock exchange.
What are impacts of IFRS?
- Increased global comparability of accounts
- Lessees will appear asset-rich but with greater debts, i.e. balance sheet will grow, gearing ratios will increase and capital ratios will decrease
- increased demand for short-term leases, service elements split out of rent so they are not taken into account in balance sheet calculations
What are profit and loss statements?
Looks at income and expenditure over a period of time. Shows whether a company has made a loss or profit in that time.
What are the basis of apportionment for service charges?
Floor area, rateable value, fixed amount, fixed percentage
What are the issues associated with apportioning on a) rateable value basis and b) fixed amount/percentage?
A) rateable values do not generally reflect a reasonable assessment of the benefit and use of common services. Rateable values can also change, and occupiers are able to appeal against assessments.
B) can give rise to situations where the total service charge recoverable can be less than or greater than 100% of the actual costs.
When does a firm need to register for VAT
If turnover is more than £85,000 or if projected to exceed £85,000 in the following month
What does a Tenant entering administration mean for a Landlord
When a tenant enters administration a landlord cannot instruct CRAR or commence forfeiture proceedings.
- Can try and surrender the lease with administrators – no obligation to do so
- Submit claim
- Depends if administrators pay rent and remain in occupation of the unit – but could apply to court
- Rent is still contractually payable but landlord is an unsecured creditor and may be unlikely to see much distribution of assets which final distributions are made
- Permission to draw down on RD
Then at end of administration, either liquidation, CVA, sale, or return to directors (unlikely)
What does a tenant entering liquidation mean for a landlord
- Rent will remain payable unless the lease is disclaimed – liquidator is free to choose whether or not to disclaim the lease
- Landlord can serve notice to elect, giving liquidator 28 days to decide whether or not to disclaim
- Liquidators role is to wind up the company and distribute, however landlord will be unsecured lender so may be unlikely in receiving anything
- Submit claim / proof of debt form
- RD draw down
What is the limitations act 1980
When no contact has been made between creditor and debtor for a period of 6 years or more, it is possible to claim that the outstanding debt is statute barred (can no longer be recovered through court action)
How can you tell if a company is solvent?
If its assets can be used to clear liabilities
Liquidity ratio
Acid test – Current assets less inventory divided by current liabilities
Working capital ratio – Current assets less current liabilities
What is a completion statement?
Itemises all the financial transactions incoming and outgoing and indicates whether money is required from you or owed to you upon completion
What does the Companies Act 2006 do?
Modernize and simplify corporate law
Improve shareholders rights
Dictates how company accounts should be prepared
What is a balance sheet?
Statement of financial position showing its assets and liabilities at a given date usually at the end of a financial year. Assets can include cash, property, debtors and other investments. Liabilities can include borrowings, overdrafts, loans and creditors.
What are management accounts?
Are prepared for internal use by a business and are not audited.
What is the main difference between management and statutory accounts?
Latter are audited.
Thinking about your property St Albans Road, Watford, what professional statement do we adhere to:
Service charges in commercial property, 1st edition
What is a professional statement?
It sets a marker for the standards of management required in commercial property
Could you talk me through the main steps you followed when completing the reconciliation of St Albans Road, Watford?
What is the difference between statutory and underlying profits?
Underlying profits are used to present accounts in a more accurate form. Used internally.
Statutory accounts required by statute
