Accounting Principles

Question 1

What are the different accounting techniques?

Answer 1

1. Cash accounting - when the cash enters and leaves
2. Acurral accounting - on transaction dates

Question 2

What is an accrural?

Answer 2

Something which has been done but not yet invoiced.

Question 3

What is a balance sheet / statement of financial position?

Answer 3

A statement of a companies financial position at a given point in time.

Important tool to assess a company’s strengths and weaknesses.

Question 4

What does a balance sheet / statment of financial position show?

Answer 4

1. Assets
2. Liabilities

Question 5

Why would you look at a balance sheet / statment of financial position?

Answer 5

To assess the financial strength of a business.

Question 6

What is a profit and loss account?

Answer 6

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

Informs stakeholders of the performance of a business as defined by income, costs and profit.

Question 7

What is included in the profit and loss statement for your department?

Answer 7

• departments income
• outgoings i.e. staffing, office costs

Allows us to understand our profit, and profit margin. Prepared and produced on a quarterly basis.

Question 8

Where would you find the debitors and creditors?

Answer 8

On the balance sheet as trade debtors and trade creditors.

Question 9

What is a cash flow statement?

Answer 9

Shows how the cash of a business was operated and spent over the last year, including VAT.

• operating activities
• investing activities
• financial activities

Question 10

What is IFRS?

Answer 10

International Financial Reporting Standards

• Standards based approach
• International
• Companies that are publicly traded on the stock exchange must follow IFRS, otherwise can to follow GAAP

Question 11

What other reporting standards are there?

Answer 11

Generally Accepted Accounting Principles (GAAP)

UK GAAP

Question 12

What is GAAP?

Answer 12

• rules based
• primarily used in US

Question 13

What is UK GAAP?

Answer 13

• Rules based approach
• FRS 102 used for companies not following IFRS

Question 14

How do management accounts differ from company accounts?

Answer 14

Company accounts are a statutory requirement and offer a financial overview of a business. Prepared annually and are audited.

Management accounts are prepared for internal use by a business and are not audited.

Question 15

What is in a statutory financial statement?

Answer 15

1. written reports
2. profit and loss account (income statement)
3. balance sheet (statement of financial position)
4. cashflow statement (statement of cashflow)

Question 16

What is in a written report?

Answer 16

Directors report on how the business has been performing.

Question 17

What contents are within a PLC accounts report?

Answer 17

1. Chairman’s statement
2. Independent auditor’s report
3. Income statement (profit and loss account)
4. Statement of financial position (balance sheet)
5. Corporate governance report
6. Remuneration report
7. Other statutory information.

Question 18

Are you aware of any recent accountancy changes?

Answer 18

Yes, 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 has to be accounted for on a balance sheet.

Rent is a liability.

Exemptions exist for leases of 12 months or shorter.

Question 19

Why is it important to keep accurate accounts?

Answer 19

1. Allows you to understand the performance of your business
2. To comply with legislation - you can be penalised for not keeping adequate records or producing incorrect tax returns

Question 20

What would happen if a company didn’t keep accurate accounts?

Answer 20

1. Harder to make spending decisions / budgeting
2. Lead to fraud
3. Reputation may lower
4. Penalties from HMRC for carelessness

Question 21

Why must an RICS member/Firm manage their finances appropriately?

Answer 21

Rules of Conduct for both Members and Firms requires ‘Solvency’.