1 - Accounting Principles and Procedures Flashcards
Can you tell me about the Insolvency Act 1986?
- Sets out the laws governing insolvency and bankruptcy for businesses and individuals respectively.
- Only approved people/companies allowed to act as insolvency practitioners
Can you tell me about the Companies Act 2006?
- One of the longest pieces of UK Legislation that brings all company based law in to one place.
- Requires registration with Companies House and appointment of Directors etc.
- Requires submission of accounts by the Director on a yearly basis to HMRC.
What is GAAP and what is the purpose of it?
Generally Accepted Accountancy Principles are a set of principles on how to produce company accounts in terms of presentation, content and process so that they are:
- Consistently filed
- Complete
- Comparable
Who produces the GAAP?
UK Financial Reporting Council
What is IAS and what is the purpose of it?
International Accounting Standards that are similar to the principles of GAAP, and aim to foster international trade and business through transparency and trust in financial reporting.
What are the key differences between GAAP and IAS in the UK?
- IAS are principles whereas the GAAP for each country are the more specific rules.
- Under FRS 102 property is revalued each year to fair market value. This is called the Fair Value Model.
- Under IFRS/IAS, you can also use the Cost Model, where the property is measured at cost less accumulated depreciation.
What is the other name for GAAP in the UK?
Financial Reporting Standards 102 or “FRS 102.”
What should be submitted in a Companies’ Annual Accounts?
- Profit and Loss Statement
- Balance Sheet
- Notes about the account
- Director’s Report
- Auditor’s Report
Why does a Company have to submit Annual Accounts? What is the purpose of it?
- To comply with Companies Act 2006
- To break down and show the financial actions and performance of the company
What is an audit, and what is the role of the auditor?
- An audit is a process to review compliance to governance, process, policy or regulation/law.
- The auditor is an independent person (usually) who undertakes the audit. In a business/accounts context, this is to review whether the business is complying with the UK GAAP/FRS 102.
Explain the following terms:
- Overheads
- Turnover
- Capital Allowances
- Overheads are the operating costs of running a business, such as rent, heat, light, power.
- Turnover is the amount of revenue generated by a company over the financial year, through it’s normal business operations.
- Companies are allowed to deduct the costs of Capital expenditure from their tax return (depending on various accounting specifics) so that there is less overall income to be taxed.
What is financial leverage?
Borrowing money to invest in order to secure a greater return than the interest obligation of the credit.
What are the two types of asset?
Fixed - Assets that are not expected to be turned in to cash, i.e. property.
Current - Assets that are expected to be turned in to cash within the next 6 months, i.e. stock.
Can you explain the concept of Cashflow and what a Cashflow statement is?
- Cashflow is the movement of cash in and out of a business over a period of time.
- A Cashflow statement shows this movement and projected forecast to help businesses understand any management actions as required, such as investing (positive) or borrowing (negative).
What is Insolvency and how is it different to Bankruptcy?
- Insolvency is the inability for a business to pay it’s debts.
- Bankruptcy is the same but for individuals only.
