Accounting principles & procedures Level 1 Flashcards
What is the difference between a balance sheet and a profit and loss account?
Balance sheet is more of a snapshot in time, shows assets, liabilities like debts and shareholder equity - shows the value of business at a certain point
Profit and loss account summarises income, revenues, costs and expenses over a period of time resulting in a profit or loss at the end, can be used to calculate taxation
When would you use a balance sheet and a profit and loss account?
Balance sheet to show what company owns and owes and long term investments
Profit and loss statement answers “is the company profitable?” where revenue is strong or expenses are weak
How do you prepare a cashflow?
Financial statement showing all company cash inflow and cash outflow. provides net cashflow and amount of money at hand
If actual was at variance to forecast what does this say?
An assumption was incorrect
What action would you take?
Find out what varied from forecast and either eliminate variable or alter forecast
How would you assess the financial standing of a contractor?
Companies house, credit checks, check their bank account, see how many contracts they have
What do you understand by the acronym GAAP?
Generally Accepted Accounting Practice, accounting standards by UK Financial Reporting Council
Would you understand by the term ratio analysis?
Method of gaining insight into companies liquidity, efficiency and profitability by looking at its financial statements
Can you give me some typical ratio analysis examples?
profitability ratios, efficacy ratios, liquidity ratios, solvency ratios, coverage ratios, market ratios, gearing ratios
What are statutory accounts?
End of each financial year to report and disclose for filing with Companies House
What are management accounts?
produced for owners and managers, monthly or quarterly to inform decision making or business planning
What are the key differences between management and statutory accounts?
Don’t have to meet statutory requirements, can just be what managers request
In the UK where are statutory accounts for limited companies required to be filed?
Companies House
What is Tax depreciation?
Assets declining value is offset from company taxable profit, can be recorded as expense i.e. vehicles, computers, buildings
Overheads?
ongoing operating costs of business, fixed i.e. rent or building insurance, don’t change every month,
variable i.e. delivery or utility charges
Escrow account?
Intermediary third account to hold money until the time to transfer
Company accounts are for?
Recording profitability, tax calculations, business growth, monitoring.
Legislation requires accurate accounts.
Financial leverage?
using borrowed funds i.e. a loan to spend on the business / increase profit and operations
Capital allowance?
Tax relief based on expenditure of certain categories, plant lift maintenance, R&D
Current asset?
Can be converted to cash in a year
Fixed asset?
Cant be added to cash in a year
Creditor?
Company owes money to them
Debtor?
Owe money to the company
Signs of insolvency?
low credit rating, falling working capital
What current challenges is Covid and/or Brexit bringing to Accounting Principles?
Covid brought about grants and loans which complicated company accounts. Also losing income due to industry uncertainty.
Business operating outside of the UK might have been affected by Brexit.
