Accounting Principles And Procedures L1 Flashcards
(44 cards)
What is the difference between a profit and loss statement and a balance sheet?
Proft and loss statements are an account of profit and loss earned by a company during a specific period.
A balance sheet is a statement which shows all assets and liabilities of a company on one particular day.
What do companies need to provide every year in accordance with the Companies Act 2006?
Annual accounts must be filed with companies house.
What is the purpose of a cash flow statement?
Cash flow statement will provide a detailed overview of cash inflows and outflows.
They can be used to demonstrate a company’s ability to operate in the short and long term, to help stakeholders understand its ability to generate cash.
What are the key financial statements that all companies must provide?
Profit and loss statement
Balance sheet
Cash flow statement
What is the difference between management and financial accounts?
Management accounts are for internal use by management teams.
Financial accounts are the company accounts required by law.
What is the difference between a statement of comprehensive income and a statement of financial position?
Statement of comprehensive income shows expenditure and profit/loss of the company.
Whereas the statement of financial position breaks down the company assets and liabilities at a given point in time.
What are the 3 main financial accounts?
Balance sheet
Income statement
Cashflow statement
Why do chartered surveyors in your pathway need to understand and interpret company accounts?
For assessing the covenant strength of potential tenants and landlords.
For profits method of valuation
Assessing the financial strength of contractors and those tendering for contractors.
Consider for my own business accounts if we’re to run own firm.
What does the balance sheet show?
Shows assets and liabilities and stakeholders/owners equity.
What is the balance sheet also known as?
The statement of financial position
What is the income statement also known as?
Profit and loss
Does a balance sheet relate to a period of time or a specific date?
Specific date
What does an income statement (profit and loss) show?
Summary or income and expenditure to show net profit/loss for a specific period of time.
Can you draw comparisons between income statements for different years?
Yes. Because they relate to a specific period of time.
What is a cashflow statement?
Merges balance sheet and income statement to show actual receipts and expenditure including VAT
What is a cashflow statement split into?
Investing activities
Financial activities
Core operations
What is an asset?
A resource owned by a company which has economic value and expected to provide future benefits.
What assets could a business have?
Land
Buildings
Stock
Machinery
What is a liability?
Obligations of a business owed to another party, such as a bank, supplier or customer.
Name some potential liabilities of a business.
Capital
Loans
Retained profits
Shareholders funds
Creditors claims
Who are audited accounts prepared by?
Accountants
Under which Act may audited accounts be required?
Companies Act 2006
Why are audited accounts beneficial?
Identifies weaknesses
Required if business is sold
Facilitates access to finance
Can you name some typical UK company types?
Partnership
Limited Company
Public Limited Company
LLP
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