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2021 > Accounting Principles & Procedures (L1M) > Flashcards

Accounting Principles & Procedures (L1M) Flashcards

1
Q

What is the contents of a set of public limited company accounts?

A
  • Chairman’s Statement & Director’s report
  • Independent Auditor Report
  • Corporate Governance Report
  • Income Statement (profit and loss account)
  • Statement of financial position (balance sheet)
  • Corporate governance report
  • Remuneration report
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2
Q

What GAAP?

A 
UK GAAP (Generally Accepted Accounting Principles)
•	Body of accounting standards in UK
•	No universal GAAP standard – vary from location and industry
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3
Q

What is IFRS?

A

International Financial Reporting Standards
• Comparable internationally and broadly standardised
• Adopted by many public companies

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4
Q

What are the key things to look for in a company’s accounts?

A
  • Balance sheets - statement of business’ financial position (assets (cash, property, debtors) and liabilities (borrowings, overdrafts, loans) on a given date)
  • Profit and loss account - income statement. Income and expenditure including non-cash (depreciation)
  • Cash flow- exact value of cash inflows and outflows
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5
Q

Name some accounting ratios

A
  • Return on Capital Employed = operating profit / capital
  • Current Ratio = current assets / current liabilities
  • Profit Margin = Profit / Revenue
  • Gearing Ratio - debt / equity
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6
Q

What are Company Accounts used for?

A
  • Taxation (Companies Act 2006)
  • Stock exchange listings
  • Company investments
  • Dividend distribution
  • Borrowing (covenant strength)
  • Going concern valuations
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7
Q

What is a balance sheet?

A
  • A statement of financial position
  • Displays a firms’ assets (cash, property, investments etc) and liabilities (borrowings, overdrafts, loans etc) on a given date (usually end of financial year)
  • Important tool to assess a companys’ strengths and weaknesses
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8
Q

What is a profit and loss account?

A

A summary of the business’s income and expenditure transactions, prepared usually on an annual basis
It can be a consolidated statement summarising a number of trading entites

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9
Q

What is a cash flow statement?

A

Shows how the cash of a business was operated and spent over the last year, including VAT.

  • operating activities
  • investing activities
  • financial activities
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10
Q

What is included in the cash flow statements for your department?

A
  • departments income, including VAT
  • outgoings i.e. staffing, office costs

Allows us to understand our profit, and profit margin. Prepared and produced on a quarterly basis.

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11
Q

How do management accounts differ from company accounts?

A
  • Company accounts are a statutory requirement and offer a financial overview of a business. Prepared annually and are audited.
  • Management accounts are prepared for internal use by a business and are not audited.
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12
Q

Why must an RICS member/Firm manage their finances appropriately?

A

Rules of Conduct for both Members and Firms requires ‘Solvency’.

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13
Q

What contents are within a PLC accounts report?

A
  • Chairman’s statement
  • Independent auditor’s report
  • Income statement (profit and loss account)
  • Statement of financial position (balance sheet)
  • Corporate governance report
  • Remuneration report
  • Other statutory information.
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14
Q

Are you aware of any recent accountancy changes?

A
  • Yes, IFRS 16 is the lease accounting standard with which all companies have to comply when using the international Financial Reporting Standards.
  • The full cost of leases has to be accounted for on a balance sheet.
  • Rent is a liability.
  • Exemptions exist for leases of 12 months or shorter.
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15
Q

What is in a written report?

A
  1. Chairman’s comments
  2. CEO’s comments
  3. CFO’s comments
  4. Corporate responsibilities
  5. Risk management
  6. Director’s
  7. Corporate governance
  8. Remuneration
  9. Director’s responsibilities
  10. Auditors
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16
Q

What is in a statutory financial statement?

A
  • Written reports
  • Profit and loss account (income statement)
  • Balance sheet (statement of financial position)
  • Cashflow statement (statement of cashflow)
17
Q

What are different types of company?

A
  • PLC - shares offered to public. Limited liability
  • LLP - Partners’ liability is limited. Not responsible for others’ negligence
  • Limited Company - responsible for debt to extent of capital invested
  • Sole Practitioner - one exclusive earner
18
Q

If you were looking at accounts, what would you look at to establish a tenant’s strength?

A

• Revenues, costs, assets and liabilities

19
Q

What would you include in a P&L account?

A
  • An income statement

* Summaries the revenues generated and the costs incurred during a specific time period, usually a year

20
Q

What are management accounts?

A

Prepared for internal use by a business and are not audited

21
Q

What are audited accounts?

A

Prepared by a Chartered Accountant

22
Q

What is a consolidated set of accounts?

A

Comprises a number of individual subsidiary accounts for a company within a single set of accounts

23
Q

What are statutory accounts?

A

A report prepared annually by limited companies - to break down and showcase financial actions taken by the company in that year

  • Produced to form a statement of the company’s overall spending
  • Include profit & loss report and balance sheet
  • Used internally and externally - main reason is to share annual financial information with shareholders and HMRC.
24
Q

What are the key financial statements all companies must provide?

A
  • Profit and loss account
  • Balance sheet
  • Cash flow
25
Q

What are management accounts?

A

Internal use and financial accounts are company accounts required by law

26
Q

What do you need to understand in relation to company accounts?

A
  • Proof of funds
  • Own business accounts
  • If set up alone - use in future
  • Financial strength of contractors
27
Q

What is a balance sheet?

A

ah

28
Q

What is a cashflow?

A

ah

29
Q

What is a profit and loss account (income statement)?

A

ahah

30
Q

What is the difference between Management Accounts and Audited (Company) Accounts?

A

ah

31
Q

In terms of accounting principles what does S&P’s profit and loss look like at the moment?

A

a

32
Q

What’s the difference between a balance sheet and an income statement?

A

a

33
Q

What are the standards that must be adhered to?

A

a

34
Q

How can budgets be accurately forecasted?

A

a

35
Q

You mentioned that in your terms of engagement letters you outline your fee structure comma, what regulation is this in accordance with?

A

a

36
Q

How do GAAP and IFRS affect the work you undertake?

A

IFRS specify in detail how companies must maintain their records and report their expenses and income. They were established to create a common accounting language that could be understood globally by investors, auditors, government regulators, and other interested parties.

IFRS is not as strict in defining revenue and allows companies to report revenue sooner. A balance sheet using this system might show a higher stream of revenue than a GAAP version of the same balance sheet.

A parent company must create separate account reports for each of its subsidiary companies.

37
Q

What is the acid test ratio?

A

In finance, the quick ratio, also known as the acid-test ratio is a type of liquidity ratio, which measures the ability of a company to use its near cash or quick assets to extinguish or retire its current liabilities immediately.

2021 (22 decks)

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