Week 1 Flashcards
What is GAAP ?
Generally accepted accounting principles, they are the complete set of accounting regulations that apply in a certain jurisdiction.
What does GAAP comprise ?
The rules of accounting, accounting standards, company law, conceptual framework.
What are the standards used for sole traders and partnerships? Ltd’s? The US? The UK? International?
Sole trader and partnerships adopt accounting standards although they don’t have to.
Ltd’s follow UK/ IAS
US follow GAAP
UK follow IFRS and FRS’s
International accounting standards follow IAS’s and IFRS
How is the IASB split ?
(International accounting standards board)
The IASB is split from the IASC (committee).
So, the IASC is split into the standards advisory council and the IASB which then goes onto the IFRIC (international financial reporting interpretations committee)
What is the IAS ? Who follows it ?
International accounting standards
All quoted companies on stock exchange in the EU are required to follow IAS.
Other companies in the UK can choose UK standards or IAS.
What is the objective of financial statements?
To provide info about financial position, performance, and changes in finances position of an entity that is useful to a wide range of users making economic decisions.
What are the underlying assumptions of the FNST ( financial statements)?
Accruals - revenue and costs are recognised in the FNST when they occur not when cash is paid or received.
Going concern - the entity will continue to operate for the foreseeable future.
What are the 5 elements of FNST?
Assets
Liabilities
Equity
Income
Expenses
What is the accounting equation ?
Assets - liabilities = equity
Or
Equity + liabilities = assets
What is the IAS 1 ?
The international accounting standards 1, covers the form and content of financial statements. It was revised in June 2011 ( name change for SOCI - statement of comprehensive income )
What does the IAS 1 set out ?
The general features of financial statements
Guidelines with regard to their structure
Minimum requirements for their content
What are the components of IAS 1 ?
Statement of financial position
Statement of profit and loss and other comprehensive income
Statement of changes in equity
Statement of cash flows (IAS7)
Notes
How does IAS 1 identify financial statements ?
Name of the reporting entity
Whether it is a single entity or a group
Date at the end of the reporting period or the period covered
Presentation currency used
Level of rounding
How does IAS 1 document the frequency of reporting ?
Financial statements should be presented at least annually.
If not it should be disclosed the reason for the period being longer or shorter than a year and the fact that comparisons can’t be made.
How does IAS 1 define current and non current assets?
An asset is a current asset if it satisfies any of the following:
It is expected to be released within the entity’s normal operating cycle
It is held for the purpose of being traded
It is expected to be realised within 12 months after the reporting period
It is cash or cash equivalent
All other assets are non current assets.
What are examples of current and non current assets ?
Non current
Property, plant and equipment
Current
Inventory
Receivables
Cash at bank and in hand
Prepayments
How does IAS 1 define current and non current liabilities?
A liability is a current liability if it satisfies any of the following:
It is expected to be settled within the entity’s normal operating cycle
It is held for the purpose of being traded
It is due to be settled within 12 months after the reporting period
The entity does not have the right to defer settlement for at least 12 months after the reporting period
All other liabilities are non current liabilities.
How does IAS 1 recognise the statement of profit and loss and other comprehensive income ?
All items of income and expense must be presented in either
A single statement of profit and loss and other comprehensive income
Or
2 separate statements comprising an income statement showing components of profit and loss and a statement or comprehensive income beginning with the profit or loss for the period and showing components or other comprehensive income.
What are examples of what goes into the SOPAL according to the IAS1?
Revenue
Finance costs
Tax expense
Profit or loss from discontinued operations
Profit or loss for the period
Each component of other comprehensive income
Total comprehensive income for the period
How does IAS 1 classify operating expenses and other income by function ?
It classifies operating expenses into one of four categories:
Cost of sales
Distribution and selling costs
Administrative expenses
Other operating income or expense
What does cost of sales include?
Direct materials
Direct labour
Other external charges that comprise production costs from external sources
Overheads
Depreciation and amortisation
Adjustments
What does distribution costs include ?
Costs incurred after the production of the finished article and up to and including the transfer of the goods to the customer
Warehousing costs
Promotion costs
Selling costs
Transport costs
What does administrative expenses include ?
Costs of running the business that have not been classified as either costs of sales or distribution costs
Administration
Property costs
Bad debts
Professional fees
What are other operating income or expense ?
They are derived from ordinary activities of the business that have not been included elsewhere
Income for intangible assets
Income from employees to use intangible assets
How is the SOPAL formatted ?
Revenue
Cost of sales
Gross profit
Distribution costs
Administrative expenses
Operating profit
Finance costs
Profit on ordinary activities before tax
Taxation
Profit for the year
Other comprehensive income
Gains on property revaluation
Comprehensive income
What is included in the notes of financial statements?
Accounting policies
Details of certain items that have been charged in arriving at operating profit
Further information required by international standards
Additional info relevant to understanding of the financial statements
What is the statement of changes in equity and what is shown in it ?
It is how each component of equity has changed during an accounting period
It shows
Total comprehensive income for period
Effects of any changes in accounting policies
Share issues
Dividends paid
May also include
Prior period adjustments
Share issues
Transfers from revaluation reserve
What is the IAS 34 interim financial reporting ?
It is a financial report containing either a complete set of financial statements or a set of condensed financial statements for a interim period (less than a full financial year)
Standards don’t require this but stock exchanges or the gov may request them
