Accounting Principles and Procedures

Question 1

What is GAAP?

Answer 1

The generally accepted accounting principles which is the body of accounting standards published by the UK’s Financial Reporting Council.

Question 2

How many principles are there?

Answer 2

8 Principles.

Question 3

What are the GAAP principles?

Answer 3

1. Economic Entity Assumption- accounts should demonstrate clear differences between the transactions carried out by the business and the business owner
2. Monetary Unit Assumption- all records should be recorded in a financial currency, typically the same as the accounts have been prepared with.
3. Time Period Assumption- businesses should report all financial statements within a specific time period (accounting year)
4. Cost Principles- all assets should be initially recorded at their cost
5. Full disclosure principle- business or entity should disclose all relevant and necessary information to give full transparency to stakeholders and investors.
6. Going Concern Principle- the assumption that a company will complete plans during and beyond the next financial year, using its assets to meet its financial obligations.
7. Matching Principle- expenses should be recognised in the same accounting period as their related revenues
8. Revenue Recognition Principle- GAAP revenue recognition refers to the principle that all revenue should be recognised in the period that they were earned, and not when cash was received.

Question 4

When is a company required to pay VAT?

Answer 4

Businesses have to register for VAT if their VAT taxable turnover is more than £90,000. They can also choose to register if their turnover is less than £90,000.

Question 5

What are the responsibilities of a VAT registered firm?

Answer 5

As a VAT-registered business you must:

-include VAT in the price of all goods and services at the correct rate
-keep records of how much VAT you pay for things you buy for your business
-account for VAT on any goods you import into the UK 
-report the amount of VAT you charged your customers and the amount of VAT you paid to other businesses by sending a VAT return to HM Revenue and Customs (HMRC) - usually every 3 months
-pay any VAT you owe to HMRC

Question 6

How is the VAT a business pays calculated?

Answer 6

The VAT you pay is usually the difference between any VAT you’ve paid to other businesses, and the VAT you’ve charged your customers.

If you’ve charged more VAT than you’ve paid, you must pay the difference to HMRC.

If you’ve paid more VAT than you’ve charged, HMRC will usually repay you the difference.