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APC > Accounting Principles & Procedures > Flashcards

Accounting Principles & Procedures Flashcards

1
Q

What is a management account?

A
  • Are for the internal use of the management team.
  • Often used to make well-informed business decisions (resourcing, recruitment etc.)
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2
Q

What is a company /statutory account?

A
  • Financial accounts required to be submitted to Companies House by law (Companies Act 2006).
  • Prepared by accountant in a format to meet with International Financial Reporting Standards (IFRS).
  • Private companies to submit 9 months after year end.
  • Public companies 6 months after year end.
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3
Q

What is included in a Management Account?

A
  • Profit and loss account.
  • Balance sheet.
  • Cash flow statement
  • KPI’s
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4
Q

What is included in Company Accounts?

A
  • Profit and loss account.
  • Balance sheet.
  • Cash flow statement
  • Notes to the accounts (detail and comment on the information presented in the Balance sheet, Income statement, and Cash flow statement)
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5
Q

What are the key financial statements that all companies must provide?

A
  • Profit and loss account.
  • Balance sheet.
  • Cash flow statement
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6
Q

Why do we need financial reporting?

A
  • Regulate /prevent fraud.
  • Provide information on the health of business to investors.
  • Help management MANAGE THE BUISNESS.
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7
Q

What is a Balance Sheet?

A

Reveals the financial status of a business at a specific point in time.

At any particular moment, it shows you how much money you would have left over if you sold all your assets and paid off all your debts.

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8
Q

What is included in a Balance Sheet?

A
  • Total Assets less current Liabilities (inc. creditors /debtors)
  • Capital /reserves.
  • Statements /notes on the account.
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9
Q

What is a Profit and Loss Statement?

A

Shows how much a company made and spent over a specific period of time.

Usually every 12 months.

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10
Q

What is included in a Profit and Loss Statement?

A
  • Gross Profit (cost of sales)
  • Operating expenses (salaries, rent, insurance)
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11
Q

What is a cash flow forecast?

A

A cashflow forecast is a statement that helps estimate the incoming and outgoing costs of a company over a period of time.

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12
Q

What is included in a cash flow forecast?

A
  • Expected outgoings (operation costs, salaries, insurance, rent etc.) dates to receive.
  • Expected income /dates to receive.
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13
Q

What is the difference between a profit and loss statement and a balance sheet?

A

Balance Sheets: What the company owns /owes at a specific point in time.

Profit & Loss Statement: Identifies if a company has made a profit or loss during a specified period of time.

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14
Q

What is the purpose of a cash flow forecast?

A
  • Planning for the future.
  • Future goal accomplishments.
  • Predicts any negative cash flow where reserves or loans may be needed.
  • Predicts positive cash flow.
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15
Q

What is working capital?

A

The money available to meet your current, short-term obligations.

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16
Q

How would you calculate working capital?

A

Current assets minus the current liabilities.

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17
Q

How would you assess the financial strength of a contractor?

A
  • Credit Safe website which my company subscribes to access a company’s accounts /financial position of the company (Dun & Bradstreet check).
  • A low credit rating may be a sign of insolvency.
  • I considered both the group accounts and the company accounts.
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18
Q

What is Gross Profit?

A

The profit a company makes after deducting the Direct Costs associated with providing its services.

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19
Q

What is Net Profit?

A

Total Revenue (income generated) less Total Expense (cost to deliver) = Profit

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20
Q

What is a companies turnover?

A

Complete sum of sales made over a period of time.

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21
Q

What is a Creditor?

A

Someone you owe money too
(credit card)

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22
Q

What is a Debtor?

A

Someone that owes you money
(debit card – your money)

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23
Q

What is the IFRS?

A

International Financial Reporting Standards.

Provide accounting rules and standards.

24
Q

What is an Asset?

A

What a company owns.

25
Q

What is a Liability?

A

What a company owes.

26
Q

What is taxation?

A

The amount owed to HMRC based on the company profit.

27
Q

Define Money Laundering?

A

Financial transactions used to conceal the identity, source, and/or destination of illegally gained money.

NOTE: Report suspicious activity of money laundering to the National Crime Agency (NCA).

28
Q

What is GAAP?

A

The Generally Accepted Accounting Principles

29
Q

What is IAS?

A

International Accounting Standards

30
Q

What does is mean when a company goes into administration?

A

When someone is appointed to manage companies affairs on behalf of creditors.

31
Q

What does it mean when a company goes into liquidation?

A

Involves the shutting down of a company to sell off assets to pay off creditors.

32
Q

What is accounting?

A

It is the process of keeping financial accounts.

33
Q

What is bankruptcy?

A

The legal process where people or companies who cannot repay debts may seek relief from the government of their debt.

It is court ordered. It stays on your financial record for up to 10 years

34
Q

Where might you find information on a company assets ?

A

Balance Sheet

35
Q

What is VAT ?

A

Value Added Tax

36
Q

When should a company be registered for VAT?

A

£85,000.00

If the company has VAT taxable turnover greater than £85,000 in the last 12 months or in the proceeding 30 day period.

37
Q

Why do chartered surveyors in your pathway need to understand and be able to interpret company accounts?

A
  • For assessing the financial strength of contractors.
  • For assessing competition
  • To assist with business operations
  • When setting up a new firm
38
Q

What happens if a company’s liabilities are greater than its assets?

A

There is a likelihood the company will go into administration.

39
Q

What is the Limitations Act?

A

The Limitation Act 1980 sets out the rules on how long someone has to take action through the courts against another party.

If the limitation period has expired then a claim is statute-barred and the person who wants to make the claim may be prevented from doing so.

40
Q

Are there any RICS documents relating to cash flow?

A

RICS guidance note - 2012 - Cash flow forecasting - First edition

Summarises what cash flow forecasting is to analyse expenditure against forecast expenditure.

41
Q

What are the requirements under the companies act 2006 ?

A

Company to keep adequate accounting records.

42
Q

What is GAAP?

A

The body of regulation establishing how company accounts must be prepared.

Published by the UK’s Financial Reporting Council (FRC).

43
Q

What is auditing?

A

Term used to describe the examination and verification of a company’s financial records.

Performed to ensure that financial statements are prepared in accordance with the relevant accounting standards.

Prepared internally using GAAP or IFRS and developed to provide useful information to stakeholders, creditors, customers, suppliers

44
Q

How would you assess the financial position of a company?

A

Review of the balance sheet.

Companies Assets, Liability and Equity and a specific point in time.

45
Q

What is Equity?

A

The value that the owner has in the business.

This can be calculated by deducting total liabilities from total assets on a company balance sheet.

46
Q

What is the current base rate for the Bank of England?

A

5.25%

It’s the rate the Bank of England charges other banks and other lenders when they borrow money.

47
Q

How do you calculate profit?

A

Deducting the direct cost with the indirect costs.

Direct costs - such as labour
Indirect costs - (also known as overheads).

Total revenue – Total expenses = Profit

48
Q

Whats included in a profit and loss account?

A

P&L is a financial report that shows the income and expenditure of your business over a specified time.
This includes:

  • Total Revenue (Income generated by sales)
  • Total Expenses (cost incurred from delivering the service)
49
Q

What is the IFRS and what is its purpose?

A

International Financial Reporting Standards

It’s a set of accounting rules and standards that determine how accounting events should be reported in your business’s financial statements.

50
Q

What are management accounts?

A

Prepared for internal use only.

Detailed reports to highlight the health of a business.

Provide an holistic view of where the business stands and where it is heading.

51
Q

What are the Generally Accepted Accountancy Principles (GAAP)?

A

The body of regulation establishing how company accounts must be prepared.

Published by the UK’s Financial Reporting Council (FRC).

52
Q

When should management accounts be prepared?

A

Prepared monthly or quarterly.

This ensures decision makers can respond to new business opportunities or business threats.

53
Q

What are annual accounts for a private limited company?

A

Summary of a companies financial activity over a 12 month period.

Prepared for Companies House and HMRC every year consisting of:
- Balance sheet
- Profit and loss statement
- Cash flow statement

54
Q

On a Balance Sheet, what is an asset?

A

Assett: Owned by the organisation.

Assetts can be ‘Fixed’ (property) or ‘Current’ (shorter life span – stock, petty cash or cash in the bank)

55
Q

On a Balance Sheet, what is a liability?

A

Obligation /debt arising that needs to be re paid.

Long term Liabilty: Not due to be paid within One Year

Current Liability: Money due to be repaid within a year.

56
Q

When is a statutory financial audit required?

A

This is required Annually.

Statutory financial audits is an independent inspection of a company’s accounts.

This ensures the financial accounts have been prepared accurately and within the relevant standards.

Required unless the business qualifies for audit exemption (below threshold £10mil total assets for the financial year)

57
Q

How does International Financial Reporting Standards vary from National GAAP?

A

IFRS is a set of international accounting standards.

GAAP is a set of rules that accountants follow.

GAAP is published by the UK’s Financial Reporting Council (FRC).

Generally Accepted Accounting Principles (GAAP)

APC (20 decks)

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