Accounting Principles & Procedures

Question 1

What does a Dun & Bradstreet report show?

Answer 1

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.

Question 2

What are limitations of a Dun & Bradstreet report?

Answer 2

It is limited only to the latest submitted documents on companies’ house.

Question 3

How does Companies House work?

Question 4

What are the different accounting techniques?

Answer 4

1. Cash accounting – when the cash enters and leaves
2. Accrual accounting – on transaction dates

Question 5

What is an accrual?

Answer 5

Something which has been done but not yet invoiced

Question 6

What is a balance sheet?

Answer 6

A statement of a company’s financial position at any given time. Important tool to assess a company’s strengths and weaknesses.

Question 7

What does a balance sheet show?

Answer 7

Assets and liabilities.

Question 8

What is a profit and loss account?

Answer 8

A summary of the business’s income and expenditure transactions, prepared usually on an annual basis.

Question 9

What is included in the profit and loss statement?

Answer 9

Income, outgoings etc

Question 10

Where would you find the debtors and creditors?

Answer 10

On the balance sheet as trade debtors and trade creditors.

Question 11

What is a cash flow statement?

Answer 11

Shows how the cash of a business was operated and spent over the last year, including VAT (operating activities, investing activities, financial activities).

Question 12

What is IFRS?

Answer 12

International Financial Reporting Standards – standards-based approach, international, companies that are publicly traded on the stock exchange must follow IFRS – otherwise can follow GAAP

Question 13

What other reporting standards are there?

Answer 13

Generally Accepted Accounting Principles (GAAP)

Question 14

What is GAAP?

Answer 14

Rules based, primarily in US

Question 15

What is in a statutory financial statement?

Answer 15

1. Written reports
2. Profit and loss account
3. Balance sheet
4. Cashflow statement

Question 16

What is in a written report?

Answer 16

Directors report on how the business has been performing.

Question 17

Are you aware of any recent accountancy changes?

Answer 17

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.

Question 18

What is taxation?

Answer 18

The amount of money or % that is owed to HMRC based on company profit.

Question 19

What is revenue?

Answer 19

Income generated by the sales of the product or services.

Question 19

Who is qualified to advice on Financial matters?

Answer 19

A chartered accountant.

Question 20

Talk me through a balance sheet and profit and loss statement and how they differ?

Answer 20

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.

Question 21

How does a Cash flow statement differ From an Income Statement?

Answer 21

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.

Question 22

What is included in a profit and loss statement?

Answer 22

Income - expenses = Net income.
Operating expenses include: cost of sales, marketing, tech
Capital expenditure: large transactions.

Question 23

What is included on a balance sheet?

Answer 23

Assets (cash, property, investments, Goodwill)
Liabilities (debt, taxes, overdraft)

Question 24

What contents are included in a public limited company?

Answer 24

1. Chairmans statement
2. Independent auditors report
3. income statement (profit and loss account)
4. Statement of financial position (balance sheet)
5. Corporate governance report
6. Remuneration report
7. Other statutory information

Question 25

What does ‘assets’ include on a balance sheet?

Answer 25

1. Cash
2. Property
3. Debtors
4. other investments held

Question 26

What does ‘liabilities’ include on a balance sheet?

Answer 26

1. Borrowings
2. Overdrafts
3. Loans
4. Creditors

Question 27

Are management accounts audited?

Answer 27

No as for internal use by a business

Question 28

Who prepares audited accounts?

Answer 28

A chartered or certified accountant

Question 29

What does a cash flow statement show?

Answer 29

Actual receipts and expenditure to include VAT

Question 30

What is IFRS 16?

Answer 30

A lease accounting standard what all companies have to comply with when using the IFRS.

Question 31

What has to be shown when complying with an IFRS 16?

Answer 31

The full cost of leases have to be accounted for on a balance sheet

Question 32

What is considered a liability and what is considered separately for an occupier?

Answer 32

Liability - Obligation to pay rent
Separately - service charge payments

Question 33

What type of leases are exempt from IFRS 16?

Answer 33

Leases of 12 months of shorter