Accounting Principles and Procedure Flashcards
What is Value Added Tax (VAT)?
A consumption tax placed on a product whenever value is added at each stage of the supply chain.
What is corporation tax?
- A tax paid by businesses in the UK.
- Calculated on their annual profit in a similar way to income tax for individuals.
What is an audit?
The examination and verification of a company’s financial records. It is to ensure that financial information is represented fairly and accurately.
What is turnover?
- Income or revenue that a company receives from its normal business activities.
- Usually from the sale of goods and services to customers.
What are management accounts?
Accounts prepared by a company for internal management use, or accounts prepared for a lender, such as a bank to evaluate how the business will repay funding. Management accounts will not be audited externally.
What is the difference between financial accounts and management accounts?
- Financial Accounts: Private Limited Companies in the UK must file annual accounts with Companies House, in line with the requirements of the Companies Act 2006. Each set of accounts should relate to a specific financial year, which generally runs for 12 months ending on the annual return date.
- Management Accounts: Management accounts are used by business owners and management for day-to-day and strategic decision making. Not required by law and don’t have to be filed with Companies House.
Why does a business keep accounts?
- Tax purposes (required by law).
- Demonstrates the company’s financial standing (support loan or borrowing applications).
- To ensure cash flow and profitability in a company is being correctly managed.
What is an escrow account?
- A separate account owned by a third party, held on behalf of two other parties.
- Can be used as a project bank account.
What is a project bank account?
- Ring fenced bank accounts that allow for payments to be made directly and simultaneously to a main contractor and members of the supply chain.
- In essence, it is a cash-flow disbursement model designed to project the project from the risk of supply chain insolvency and to speed up payment times.
What are business overheads?
The indirect costs of fixed expenses of operating a business such as:
- Rent / leasing costs.
- Utility bills.
- Staff salaries.
- Insurance.
Can you explain the principle of tax depreciation?
Tax depreciation is the depreciation expense claimed by a taxpayer on a tax return to compensate for the loss in value of the tangible assets. Examples include property, plant and equipment.
