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