Accounting principles and procedures Flashcards
(31 cards)
What’s the contents of a public limited company account include:
*Chairman’s Statement
*Profit and loss account (income statement)
*Balance Sheet (statement of financial position)
*Corporate governance report
*Remuneration report
*Other statutory information
Can you explain the key financial statements used in accounting?
*Balance Sheet - current financial position, assets, liabilities and equity
*Profit and loss statement - revenue, costs & expenses
*Cash flow statement - tracks cash inflows and outflows
What is a balance sheet?
A statement of the business’s financial position showing assets, liabilities and equity
Should a balance sheet always balance?
Yes as the entry for shareholders equity will always been the remainder or difference between company’s total assets and liabilities
What is an asset?
Resource owned by a company - cash, property etc
What are liabilities?
Obligations a company owes - borrowings, overdrafts, loans and creditors
What is equity?
The owners residual interest in the assets minus the liabilities
What is a profit and loss account and what’s included?
Summary of the business income and expenditure transactions: turnover, profits, expenses, taxations, dividends
Difference between management accounts and audited accounts?
*Management account: prepared for internal use by a business and not audited
*Audited accounts: prepared by chartered/certified accountant submitted to companies house
What is the role of an auditor?
Ensure a company’s financial statements are accurate, reliable and comply with accounting standards
What is a cashflow statement?
Track cash ins and outs, shows all receipts and expenditure
What is a consolidated set of accounts?
Comprises of a number of individual subsidiary accounts for a company with a single set of accounts
What is the difference between a profit/loss account and a balance sheet?
A balance sheet states the business’s financial position showing its assets and liabilities, where as profit and loss account is a summary of the business income and expenditure transactions
How are profit/loss accounts and balance sheets utilised within a business?
Both go into the audited accounts but profit and loss shows a summary of the income and expenditure for the year and may be used to compare to a previous year for performance review. Balance sheet shows a snapshot of the assets and liabilities typically at year end to understand over state of financial position.
What is IFRS 16?
New lease accounting standard where leases now have to be included on the balance sheet as a liability, exemptions for leases 12 months or less
Tell me about The Generally Accepted Accounting Principles (GAAP)?
*Refers to a common set of accepted accounting principles, standards and procedures that companies and their accounts must follow when they compile their financial statements
* Plays crucial role in ensuring financial statements are fit for purpose and robust
What is another reporting standard and how is it different to GAAP?
International Financial Reporting Standards and GAAP are both sets of accounting standards but IFRS is a global standard for financial report where UK GAAP is tailored for UK-based companies
What reporting standard does Bruntwood use?
Bruntwood use FRS102 accounting standard under the UK GAAP
How are debtors and creditors shown on the balance sheet?
*Debtors are shown as assets under the asset section
*Creditors are shown as liabilities under the liability section
What are capital allowances?
Allow tax payers to gain tax relief from expenditure such as plant and machinery and land remediation
Why do businesses need to keep accounts?
*Assess profitability
*Legislation requires it
*Assist with tax calculations
*Supports business growth by identifying profitable areas and minimising loss making activities
What are overheads?
*Operating costs incurred on an ongoing basis
*Could be fixed or variable eg rent vs utility charges
What is an escrow account?
Contractual agreement used as financial instrument in a transaction, currency held by a third party accounting until contractual obligations have been met allowing the money to be transferred
Different types of accounting ratios?
*Liquidity ratios - assess a company’s ability to meet its short term obligations
* Profitability ratio - indicate how efficiently a company is generating profit
*Solvency ratio - assess a company’s ability to meet its long term obligations
