Accounting Principles & Procedures (Good Questions) Flashcards
What are the contents of a set of public limited company accounts?
These include:
- Chairman’s statement
- Independent auditor’s report
- Income statement (P&L account)
- Statement of financial position (balance sheet)
- Corporate governance report
- Remuneration report
- Other statutory information
What is a balance sheet (statement of financial position)?
- Statement of the business’s financial position
- Shows assets and liabilities at a given date (usually at the end of a financial year).
- Assets include cash, property, debtors and other investments held.
- Liabilities include borrowings, overdrafts, loans and creditors.
What is a profit and loss account (income statement)?
Profit and Loss account (income statement) is a summary of the business’s income and expenditure transactions prepared usually on an annual basis.
What is the difference between a balance sheet and a profit and loss account?
- Balance sheet is a statement of the business’s financial position and shows assets and liabilities at a given date (usually end of financial year).
- Profit and Loss account is a summary of the business’s income and expenditure transactions, usually prepared on an annual basis.
When would you use a balance sheet or a profit and loss account?
- To assess a company’s financial health
- Aid business decisions (i.e judge covenant strength).
What’s the difference between audited accounts and management accounts?
- Management accounts are prepared for internal use by a business and are not audited (cash flow)
- Audited accounts are prepared by a chartered or certified accountant.
What is a cash flow statement?
- A cash flow statement summarises the amount of cash and cash equivalents entering and leaving a company
- A cash flow statement will show all the actual receipts and expenditure
- A cash flow statement includes VAT.
How do you prepare a cash flow statement?
- Calculate all receipts and expenditure
- Includes VAT
How would you assess the financial standing of a contractor / tenant?
- Review audited accounts / management accounts
- Balance sheet / P&L account can be used to judge a company’s financial decision
- Software is available that assesses financial standing
What do you understand by the acronym GAAP?
- GAAP stands for Generally Accepted Accounting Practice
- Body of regulation establishing how company accounts must be prepared in the UK
Would you understand the term Ratio Analysis?
- Ratio Analysis is a method of analysis financial statements.
- Is used to evaluate a number of issues such as liquidity, profitability, stability and financial position.
Can you give some examples of ratio analysis?
- Gearing Ratio (amount of debt to equity)
- Liquidity Ratio’s (e.g Quick Ratio and Current Ratio)
- Profitability Ratio’s (e.g Return on Capital Employed, Return on Equity)
What do you understand about IFRS 16
- IFRS 16 was recently changed.
- Change impacts how occupiers regard their property liabilities.
- IFRS 16 is the lease accounting standard which all companies comply when using the International Reporting Standards.
- The full cost of leases now have to be accounted for on the balance sheet.
- An occupiers obligation to pay rent now has to recognised as a liability.
- Service charge accounted for separately and exemptions exist for leases of 12 months or shorter.
What are statutory accounts?
- Statutory accounts are prepared by a chartered or certified accountant.
What are management accounts?
- Management accounts are prepared for internal use by a business and are not audited
