APC Mandatory - Accounting Flashcards
Accounting
What are the three types of financial statement you may come across relating to a company?
Balance sheet, cash flow statement, profit and loss account.
What is an asset / liability? Can you give me an example of each?
Asset is something owned by a company e.g., Property. A liability is a financial obligation e.g., insurance.
What is the difference between financial and management accounts?
Management accounting is presented to a companyÕs internal community, while financial accounting is prepared for an external audience. Finicial accounting must adhere to the GAAP.
What do you understand by the term Generally Accepted Accounting Principles (GAAP)?
GAAP, is the overall body of regulation establishing how company accounts must be prepared in the the UK.
How do companies know which reporting framework to comply with?
By checking guidance online. There are thersholds for term over, assets and employees which set out the framework you must use. For example, FRS 102 applies to small entities.
Which reporting framework do public limited companies have to comply with?
IFRS
How would you assess the financial strength of an entity, e.g. for a valuation?
Through its turn-over, assets and size.
Can you tell me about a common financial measure?
Gross profit is the profit a company makes after deducting the costs associated with making and selling its products, or the costs associated with providing its services.
What is the acid test / ROCE / working capital ratio / gearing ratio / net assets per share?
The acid-test, or quick ratio, compares a company’s most short-term assets to its most short-term liabilities to see if a company has enough cash to pay its immediate liabilities, such as short-term debt.
Can you tell me what the role of an auditor is?
It is to make sure that information reported on financial statements is true and accurate and that the financial statements are prepared according to GAAP principles.
When are audited accounts needed and why?
An audit is required if the company has an annual turnover of more than £10.2m. the company has assets of more than £5.1m. The company has more than 50 employees on average. To provide credibiility to their finincial statements and give shareholders confidence.
How do public limited company accounts differ?
The shares of a public limited company can be transferred freely on the stock exchange to anyone, a private limited company cannot sell shares this way.
Tell me something you understand from the Companies Act 2006.
The Companies Act 2006 is the main piece of legislation which governs company law in the UK. The prime aims of the Act are: to modernise and simplify company law, to codify directors duties, to grant improved rights to shareholders, and to simplify the administrative burden carried by UK companies.
Tell me what it means to prepare accounts in accordance with IFRS.
It means that you are complying with the Companies Act 2006.
What is the difference between UK GAAP and IFRS?
IFRS set out different parts of a transaction and account for these seperately. Whereas UK GAAP allow for a bundle to be accounted for as a signle stream.
