Accounting Principles & Procedures Flashcards
- What are the five principles of GAAP?
i. Regularity
ii. Consistency
iii. Sincerity
iv. Prudence
v. Continuity
vi. Full disclosure
- What are the IFRS?
a. International Financial Reporting Standards
- What is the difference between IFRS and GAAP?
a. IFRS gives less details than GAAP
b. Smaller companies are exempt from cashflow statements in UK GAAP, but it is a requirement under IFRS
c. GAAP is rules based whereas IFRS is principles based so is open to interpretation in any given situation
- What are auditors?
a. Examine financial reports of an organisation
b. Ensure financial records are fair and accurate
- What are the management accounts?
a. Not auditable
b. Produced for internal use by business
c. Used to give info on financial accounts for management
- What is the role of an auditor?
a. Examine financial reports of an organisation
b. Ensure financial records are fair and accurate
- Why are accounts audited?
a. Produced annually
b. Prepared by chartered accountant
c. For statutory functions – reporting to companies house and HMRC
- What is IFRS 13?
a. Issued in May 2011 by International Accounting Standards Board
b. Sets out a framework for measuring fair value
c. Provides a definition of fair value
d. Fair value = “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” – essentially this is an exit price
- What is IFRS 16?
a. Came into effect 2019
b. Changed the way lease was recorded on balance sheet
c. Previously, cost of renting property was included on income statement, affecting profit and loss
d. Now a lease is recorded as a depreciating liability on the balance sheet
e. The liability is largest at the start of the lease
- What is an asset?
a. An asset is a resource with economic value that an individual, corporation, or country owns or controls with the expectation that it will provide a future benefit. Can include cash, property, debtors and other investments held
- What is a liability?
a. A liability is something a person or company owes, usually a sum of money. Liabilities can include borrowings, overdrafts, loans and creditors
- What is a financial statement?
a. Formal records of the financial activities and performance of a business
- What are three types of financial statement?
a. Balance sheet
b. Income statement (profit/loss account)
c. Cash flow statement
- What is a balance sheet?
a. A statement of the business’ financial position showing its assets and liabilities at a given date, usually at the end of a financial year
- What is an income statement (profit and loss) account?
a. Summary of the business’ income and expenditure transactions, prepared annually
- What is a cashflow statement?
a. A cash flow statement is a financial statement that provides aggregate data regarding all cash inflows that a company receives from its ongoing operations and external investment sources. It also includes all cash outflows that pay for business activities and investments during a given period
- What would you look at to assess strength of a company from their balance sheet?
a. A company with a strong balance sheet are those that are structured to support the business’ goals and maximise profits. A strong balance sheet should include; intelligent working capital, positive cash flow, a balanced capital structure, and income generating assets
- What is the difference between a P&L account and balance sheet?
a. The Balance Sheet is a statement of assets, liabilities and capital, whereas the Profit and Loss account is a statement of income and expenses. The Balance Sheet is static; it doesn’t necessarily change from period to period, whereas the Profit and Loss account will always change with each new accounting period
- What is EBITDA?
a. Earnings before interest, tax, depreciation and amortisation
- I would like to move on to accounting principles and could you talk me through some differences between a profit and loss statement and a balance sheet?
a. Yes, the balance sheet is a snapshot in time of a company’s level of assets and liabilities at the financial reporting date, whereas a profit and loss statement shows the income and outgoings and profit level of the company throughout the entire fiscal year.
- Can you talk me through some differences between how property is treated differently between UK GAAP and IAS?
a. UK GAAP treats property as fair value whereas IAS gives you the option to treat property under fair value or cost approach.
