Accounting Principles & Procedures Flashcards
What does a Dun & Bradstreet report show?
It compiles business info to measure the creditworthiness of a company. Business equivalent of a credit report check. It will colour code the company’s financial status from green, red, or orange/yellow to show their risk.
What are limitations of a Dun & Bradstreet report?
It is limited only to the latest submitted documents on companies’ house.
How does Companies House work?
UK’s official registrar of companies.
It collects and maintains information on all limited companies, making details like directors, finances, and incorporation status publicly available.
Businesses must register with Companies House, file annual financial reports, and update company information as needed.
Helps ensure transparency and accountability in the business sector.
What are the different accounting techniques?
- Cash accounting – when the cash enters and leaves
- Accrual accounting – on transaction dates
What is an accrual?
Something which has been done but not yet invoiced
What is a balance sheet?
A statement of a company’s financial position at any given time. Important tool to assess a company’s strengths and weaknesses.
What does a balance sheet show?
Assets and liabilities.
What is a profit and loss account?
A summary of the business’s income and expenditure transactions, prepared usually on an annual basis.
What is included in the profit and loss statement?
Income, outgoings etc
Where would you find the debtors and creditors?
On the balance sheet as trade debtors and trade creditors.
What is a cash flow statement?
Shows how the cash of a business was operated and spent over the last year, including VAT (operating activities, investing activities, financial activities).
What is IFRS?
International Financial Reporting Standards – standards-based approach, international, companies that are publicly traded on the stock exchange must follow IFRS – otherwise can follow GAAP
What other reporting standards are there?
Generally Accepted Accounting Principles (GAAP)
What is GAAP?
Rules based, primarily in US
What is in a statutory financial statement?
- Written reports
- Profit and loss account
- Balance sheet
- Cashflow statement
What is in a written report?
Directors report on how the business has been performing.
Are you aware of any recent accountancy changes?
Yes – IFRS 16 is the lease accounting standard with which all companies have to comply when using the IFRS. The full cost of leases has to be accounted for on balance sheet. Rent is a liability. Exemptions exist for leases of 12 months or shorter.
What is taxation?
The amount of money or % that is owed to HMRC based on company profit.
What is revenue?
Income generated by the sales of the product or services.
Who is qualified to advice on Financial matters?
A chartered accountant.
Talk me through a balance sheet and profit and loss statement and how they differ?
Balance Sheet (statement of financial position) is a statement of the business’s financial position showing its assets and liabilities at a given date, usually at the end of the financial year:
* Assets can include cash, property, debtors and other investments held.
* Liabilities can include borrowings, overdrafts, loans and creditors.
Profit and Loss Accounts (income statement) is a summary of the business’s income and expenditure transactions, prepared usually on an annual basis.
How does a Cash flow statement differ From an Income Statement?
A Cash flow statement shows the actual receipts and expenditure to include VAT. It’s not included in a set of audited accounts, but is often prepared for management purposes.
What is included in a profit and loss statement?
Income - expenses = Net income.
Operating expenses include: cost of sales, marketing, tech
Capital expenditure: large transactions.
What is included on a balance sheet?
Assets (cash, property, investments, Goodwill)
Liabilities (debt, taxes, overdraft)
What contents are included in a public limited company?
- Chairmans statement
- Independent auditors report
- income statement (profit and loss account)
- Statement of financial position (balance sheet)
- Corporate governance report
- Remuneration report
- Other statutory information
What does ‘assets’ include on a balance sheet?
- Cash
- Property
- Debtors
- other investments held
What does ‘liabilities’ include on a balance sheet?
- Borrowings
- Overdrafts
- Loans
- Creditors
Are management accounts audited?
No as for internal use by a business
Who prepares audited accounts?
A chartered or certified accountant
What does a cash flow statement show?
Actual receipts and expenditure to include VAT
What is IFRS 16?
A lease accounting standard what all companies have to comply with when using the IFRS.
What has to be shown when complying with an IFRS 16?
The full cost of leases have to be accounted for on a balance sheet
What is considered a liability and what is considered separately for an occupier?
Liability - Obligation to pay rent
Separately - service charge payments
What type of leases are exempt from IFRS 16?
Leases of 12 months of shorter
