Accounting Principles And Procedures Flashcards
What is balance sheet?
A financial statement that contains details of a company’s assets or liabilities at a specific point in time.
What is a profit and loss statement?
Shows a company’s revenue minus the expenses for running the business
What is a cash flow statement?
A financial statement that shows how cash entered and exited a company during an accounting period
What is taxation?
The amount of money or % owed to HMRC based on company profit
What is revenue?
Income generate by the sales of the product or services
What is capital expenditure?
Money spent by a business or organisation on acquiring or maintaining fixed assets such as land, buildings and equipment
What is auditing?
The examination and verification of a company’s financial records.
Prepared initially using GAAP or IFRS.
What is GAAP?
Generally Accepted Accounting Principles.
Commonly followed accounting rules and standards for financial reporting.
What is IFRS?
International Financial Reporting Standards.
Set of accounting standards that govern how particular types of transactions and events should be reported in financial statements.
What is ratio analysis?
Method of gaining any insight into a company’s liquidity, efficiency and profitability.
Liquidity ratio - ability to pay off short term debts
Solvency ratio - compare debt levels to assets
Profitability ratio - how well can generate profits
Efficiency ratio - using assets to generate sales and maximise profits
What is VAT?
Value Added Tax.
Current at 20% increasing from 17.5% in January 2011
What does a balance sheet tell you?
The company’s assets (what they own) and liabilities (what they owe).
Difference between profit and loss statement and balance sheet?
Profit and loss shows the profit and loss for a particular period
Balance sheet is the asset and liabilities at given point in time
What’s included in a profit and loss statement?
Income, expenditure and any adjustments for liabilities
What are management accounts?
Prepared for internal use to control a company activities
What are company accounts?
Legally required under the Companies Act 1989.
Show performance over a period, used to help prevent fraud.
When should a company be registered for VAT?
Taxable turnover above £85,000
Different VAT rates?
Standard 20% - most items
Reduced rate 5% - supplying or installing energy materials
Zero rate 0% - goods for a disabled person in their home
What is EBITDA?
Earning Before Tax Interest Depreciation and Amortisation.
Reflects a firms short term operational efficiency
What is an auditor?
A person or firm instructed to give a professional and independent review in a company’s financial statement
Name 3 of the contents within a set of public limited company accounts
Chairman’s statement
Independent auditors report
Profit and loss account
Balance sheet
Other statutory information
Name examples of Assets and Liabilities
Assets - cash, property, land
Liabilities - borrowings, loans, overdrafts and creditors
