Accounting Principles and Procedures

Question 1

What are the three types of financial statements you may come across relating to a company?

Answer 1

• Balance sheet
• Income statement
• Cash flow statement

Question 2

Can you explain the difference between the different types of accounts?

Answer 2

• • Balance sheet shows what a company owns (assets and liabilities) whereas income statement shows total revenues and expenses for a period of time
• Balance sheet doesn’t show performance
• Balance sheet reports assets, liabilities and equity
• Income statement shows revenues and expenses
• Balance sheet is used to assess whether company can meet financial obligations
• Income statement used to evaluate performance
• Cash flow statement shows all actual receipts and expenditure to include VAT. It is not included in the annual accounts but is produced for management purposes

Question 3

What is the difference between financial and management accounts?

Answer 3

• Financial accounting is to prepare financial statements

- Management accounting is for internal purposes

Question 4

What does the cash flow statement show?

Answer 4

• Actual receipts and expenditure

Question 5

Who are audited accounts prepared by?

Answer 5

Certified or Chartered accountant

Question 6

When did IFRS 16 become effective?

Answer 6

1st Jan 2019

Question 7

What does IFRS 16 require businesses to do?

Answer 7

Account for the full cost of a lease on the balance sheet

Question 8

Is service charge counted as a liability under IFRS 16?

Answer 8

No, they are accounted for separately

Question 9

What leases are exempt from IFRS 16?

Answer 9

• Shorted than 12 months

Question 10

What is covenant strength?

Answer 10

• Ability of a tenant to meet covenants of the lease

Question 11

What is a D&B rating?

Answer 11

• Common tool used to assess the strength of a business and its risk of failure

Question 12

What are the two components comprising a D&B rating

Answer 12

Financial Strength (e.g 5A) rating based on tangible net worth
Risk Indicator (e.g 4) highlights the chance of business failure with one reflecting low risk and 4 reflecting high risk

Question 13

What does a set of public accounts include?

Answer 13

• Chairman’s statement
• Independent auditors report
• Balance sheet
• Income statement
• Corporate governance report
• Remuneration report
• Other statutory info

Question 14

How would a company know which reporting framework to comply with?

Answer 14

• Refer to the International Financial Reporting Standards (IFRS)

Question 15

Which framework must public limited companies comply with?

Answer 15

FRS101

Question 16

Tell me something you understand about the Companies Act 2006?

Answer 16

• Introduced new provisions for public and private companies

- Applied a single unified company law regime for entire UK

Question 17

What is the difference between GAAP and IFRS?

Answer 17

• GAAP is rules based

- IFRS is principles based

Question 18

What are GAAP?

Answer 18

• The body that establishes how accounts and financial reports should be prepared in the UK

Question 19

What are statutory accounts?

Answer 19

• Annual financial records prepared at the end of your company’s financial year and sent to shareholders, Companies House and HMRC as part of your tax return

Question 20

What are the IFRS?

Answer 20

International Financial Reporting Standards

- Global framework that outlines how companies prepare and disclose financial statements