Accounting, Principles & Procedures Level 1 Flashcards
What is the difference between a balance sheet and a profit & loss account?
A balance sheet is a financial snapshot at one given time showing the financial position of the company. It is based on liabilities and owners equity at that time
Profit & loss accounts shows the profit & loss over a determined period. It is based on revenue and expenses over a set period.
When would you use a balance sheet and a profit & loss account?
I would use a balance sheet to determine a company’s financial position.
I would use a P&L to determine a company’s financial performance.
How do you prepare a cashflow?
By determining the starting balance, then considering cashflow from operations, investing and financing, and then determining the ending balance.
If actual was at variance to forecast what does this say?
It means that actual inflows or outflows were higher or lower than expected based on the forecast.
What action would you take if actual was at variance to forecast?
I would identify the reason for the variance, and whether this was a temporary variance or permanent variance by monitoring the cash flow closely. I would update the cashflow accordingly.
How would assess the financial standing of a contractor? What other sources of information?
- credit checks
- audited accounts
- tax returns
- customer base,
- senior management background and employee resources
- litigation, claims, disputes in progress
- insurances in place
What do you understand by the acronym GAAP?
GAAP stands for the Generally Accepted Accounting Principles, which is a key accounting framework. It is a collection of commonly followed accounting rules and standards for financial reporting
What do you understand by the term ratio analysis?
It is an analysis of the financial statements of a company. They can be used to determine the financial standing, through analysing profitability, liquidity, solvency.
Can you give me some typical ratio analysis examples?
Liquidity ratios, profitability ratios, gearing ratios
What are statutory accounts?
They are a set of financial reports that companies prepare at the end of the financial year. They are required by law and are for external stakeholders.
What are management accounts?
Accounts prepared by a company for internal management or use. They may be prepared for a lender to evaluate how the business will repay funding.
They will not be audited externally.
What are the key difference between management and statutory accounts?
Management accounts are presented internally
Statutory accounts are for external stakeholders and are required by law.
In the UK, where are statutory accounts for limited companies required to be filed?
Companies House
What current challenges is Covid and/or brexit and/or the current conflict in Russia & Ukraine bringing to Accounting P&P?
- Extended customer due diligence in case they have connections to Russia
- VAT implications as a result of changing regulations following Brexit
