Accounting Principles and Procedures Flashcards
What is shareholder’s equity?
The total amount that would be returned to shareholders if a company’s assets were to be liquidated.
What are financial statements?
Accounting reports that summarise a business’s activity over a period of time
What is the basic formula of a balance sheet (the accounting equation)?
Assets = Liabilities + Shareholders equity
What does shareholders equity consist of?
Shareholders capital contributions plus retained earnings
What are retained earnings?
Accumulated profits held for future use, made up of opening retained earnigs plus current year profits minus current withdrawals (owner’s dividends).
What figures are contained in a profit and loss statement?
\+ Total revenue - Cost of revenue = Gross profit - Operating costs = Operating profit - taxation & depreciation = Net profit
What is a balance statement?
A snapshot of a business’s assets, liabilities and equity at a single point in time.
Explain the difference between current assets non-current assets
Current assets can be converted into cash in a short period of time, typically a year.
Non-current assets are long-term assets used in operations to generate profit, can’t easily be converted into cash
What are the three most common types of current asset?
Cash (money already paid to you)
Accounts receivable (money due to you for purchases)
Inventory (stock for selling)
What are the three common categories or non-current assets?
Long-term investments - stocks, bonds etc.
Tangible Assets - land, buildings, machinery etc
Intangible Assets - Intellectual property
What does capitalise mean with regard to financial statement?
We record it as an asset on the balance sheet rather than as an expense on the profit and loss account
What is goodwill?
The premium one company would pay for another over and above the fair value for their assets.
What is the difference between a P&L statement and a cash flow statement?
P&L shows a companies income from their trading activities, cash flow shows all inflows and outflows. E.g. sale of equipment, cash from trading activities.
What are the three categories a cash flow statement will typically be broken down into?
Operating activities
Investing activities
Financing activities
What is the difference between IFRS and GAAP?
GAAP is rules based and IFRS is principles based
Who publishes UK Generally Accepted Accounting Principles (GAAP)?
UK’s Financial Reporting Council (FRC)
What should be included in a companies statutory accounts?
- A profit and loss acount (or income and expenditure if not trading for profit)
- balance sheet signed by a director
- notes to the accounts
- Group accounts (if appropriate)
and. .. - a Directors report
- an auditor’s report (unless small business)
What constitutes a small business?
- Less than £6.5m turnover
- Less than £3.26m balance sheet
- 50 or less employees
How is a companies accounting period determined and can this be changed?
It is 12 months from the date the company was incorporated. A company can shorten or lengthen its first accounting period in order to align with a chosen date.
What is the difference between company (statutory) accounts and management accounts?
Company accounts are mandatory and requested by HMRC, these come in a generic format. Management accounts are for internal decision making. They tend to be more detailed and do not follow a set format.
What are the deadlines for filing company accounts to Companies House?
9 months after financial year end. 6 months if PLC.
What is the dealine for filing company tax return?
12 months after accounting period.
What is the current corporation tax rate?
19%
When does a business qualify for business rates relief?
If the rateable value is below £15,000.
