Week 18: Accounting for Limited Companies Flashcards
What is a limited company?
A business entity that is legally separate from its owners, offering limited liability to shareholders
What does “limited liability” mean?
Shareholders are only responsible for the company’s debts up to the amount they invested
What are the two types of limited companies?
Public Limited Companies (PLCs) and Private Limited Companies (Ltd)
What is the key difference between a public and a private limited company?
A PLC can sell shares to the public, while a Ltd cannot
What is the role of the Board of Directors?
They manage the company on behalf of shareholders and make strategic decisions
What are ordinary shares?
Shares with voting rights, but dividends are not guaranteed
What are preference shares?
Shares that receive fixed dividends but usually lack voting rights
What is the difference between equity and debt financing?
Equity financing raises money through share sales, while debt financing involves borrowing fund
What is share capital?
The total amount raised by issuing shares
What is a bonus share issue?
Free shares issued to existing shareholders using the company’s reserves
What is a rights issue?
When a company offers existing shareholders the chance to buy additional shares at a discount
What are the main financial statements of a limited company?
Income Statement, Statement of Financial Position (Balance Sheet), Statement of Changes in Equity, Statement of Comprehensive Income
What is the purpose of an income statement?
To show a company’s revenue, expenses, and profit over a period
What is the statement of financial position (balance sheet)?
A snapshot of a company’s assets, liabilities, and equity at a specific time
What is the statement of comprehensive income?
It extends the income statement to include unrealized gains and losses
What is the statement of changes in equity?
It explains movements in shareholder equity over time, including dividends paid and retained earnings
What is the UK Corporate Governance Code?
A framework of principles ensuring transparency, accountability, and ethical management in public companies
What are the five key principles of the UK Corporate Governance Code?
Board Leadership, Division of Responsibilities, Composition & Succession, Audit & Risk, Remuneration
Why must companies follow accounting rules?
To ensure fairness, consistency, and reliability in financial reporting
Who sets international accounting standards?
The International Accounting Standards Board (IASB)
What is an auditor’s role?
To independently review financial statements and confirm they provide a true and fair view of the company’s finances
What is creative accounting?
Manipulating financial reports to make a company appear more profitable than it is
How does the UK Corporate Governance Code regulate executive pay?
It ensures that executive salaries and bonuses align with long-term company success
What is the London Stock Exchange (LSE)?
A marketplace where companies raise funds by selling shares and investors trade securities
