Accounting Principles (L1)

Question 1

What does the contents of a set of public limited company accounts include

Answer 1

Chairman’ statement
Independent auditor’s report
Income statement (profit and loss account)
Statement of financial position (balance sheet)
Cashflow
Corporate governance report
Other statutory information

Question 2

What is a Balance Sheet?

Answer 2

A statement of the business’s financial position showing its assets and liabilities at a given date, usually at the end of a financial year.
Assets include cash, property, debtors and other investments held
Liabilities can include borrowings, overdrafts, loans and creditors.

Question 3

What is a Profit and Loss Account?

Answer 3

A summary of the business’s income and expenditure transactions, prepared on an annual basis.

Question 3

What does a cash flow statement show?

Answer 3

All the actual receipts and expenditure to include VAT.
- It is the summary of the actual or anticipated ingoing and outgoing of cash in a firm over the accounting period.
- It is broken down into operating, investing and financing activities.
︎- It measures the short term ability of a firm to pay off its bills.

Question 3

What is the difference between debtors and creditors?

Answer 3

Creditors - Your firm owes another firm money e.g. If you owe a sub consultant fees then they are a creditor.
Debtors - A firm who owes your firm money e.g. a client who owes you fees is a debtor.

Question 4

What is IFRS 16?

Answer 4

IFRS 16 is the lease accounting standard with which all companies have to comply when using the International Financial Reporting Standards.
The full cost of leases have to be accounted for on the balance sheet. An occupier’s obligation to pay rent has to be recognised as a liability, though service charge payments would be accounted for separately. Exemptions exist for leases of 12 months or shorter.

Question 5

What is an example of an asset?

Answer 5

Cash, property, debtors and other investments held

Question 6

What is an example of a liability?

Answer 6

borrowings, overdrafts, loans and creditors

Question 7

what is the VAT threshold

Answer 7

£85,000

Question 8

What is the difference between company accounts and management accounts?

Answer 8

Company statutory accounts break down the financial actions taken by the company during the year.
Management accounts are prepared for internal decision making.