Accounting Principles Level 1 Flashcards by Rebecca Weare

What are the three types of financial statement that you may come across relating to a company?

1) Income statement
2) balance sheet
3) cash flow statement

How well did you know this?

Not at all

Perfectly

What is an asset / liability?

Asset - resource with economic value
Liability - debts, financial obligations

How well did you know this?

Not at all

Perfectly

What is an example of :
An asset
A liability

An asset - cash in bank, fee account, IT equipment, property
A liability - overdraft, loan, unpaid invoice for services or product

How well did you know this?

Not at all

Perfectly

What is the difference between financial and management accounts?

Financial accounts - provide information to external stakeholders eg investors, creditors, regulators
Management accounts - provide information for internal management of company or organisation - more detailed more information and usually prepared more regularly

How well did you know this?

Not at all

Perfectly

What do you understand by the term Generally Accepted Accounting Principles (GAAP)

Set of accounting standards and practices that companies use to prepare their financial statements - ensures consistency, transparency and comparability of financial data

How well did you know this?

Not at all

Perfectly

How do companies know which reporting framework to comply with?

Based on their legal status - in the UK set by Companies House requirements under the Companies Act
Or by stakeholder requirements

How well did you know this?

Not at all

Perfectly

How would you assess the financial strength of an entity, eg for a valuation?

Analyse its financial statements - look at companies house records for UK company (limited)
PLC look at stockmarket or financial reports
Look at rating on recognised rating system
Review any indicators that may be warning sign - court judgements, speak to previous clients
Bankruptcy warnings

How well did you know this?

Not at all

Perfectly

Can you tell me about a common financial measure?

Revenue
Net profit

How well did you know this?

Not at all

Perfectly

What is the acid test?

Guide to liquidity - calculated as:
(current assets plus stock) / current liabilities

How well did you know this?

Not at all

Perfectly

What is ROCE ?

Return on Capital Employed :
measures how effectively a company is using its capital to generate profits

How well did you know this?

Not at all

Perfectly

What is working capital ratio?

Divide current assets by current liablities - can company meet its current debts? Is it operating with net positive or negative working capital

How well did you know this?

Not at all

Perfectly

What is gearing ratio?

Does companies funding come from borrowing or from assets / owner investment.
If company more reliant on debt then has a higher gearing ratio.

How well did you know this?

Not at all

Perfectly

What is net assets per share?

A measure for performance of companies - especially property and investment companies - calculated by dividing net assets (total assets on balance sheet less total liabilties) by number of equity shares in issue.

How well did you know this?

Not at all

Perfectly

What is the role of an auditor?

Review and verify the accuracy of financial records and ensure that companies are complying with accounting standards, tax laws and regulatory requirements.

How well did you know this?

Not at all

Perfectly

When are audited accounts needed and why?

When meet financial criteria or to meet regulatory requirements

How well did you know this?

Not at all

Perfectly

How do public limited company accounts differ?

Timeframe for submitting them - six months PLC, nine months for LTD
AGM must be held for PLC
Stricter regulatory requirements - audited accounts?

How well did you know this?

Not at all

Perfectly

Tell me something you understand from Companies Act 2006?

Sets corporate laws for UK companies
- simplifies administration of companies
- improves shareholder rights
- updates and simplifies corporate law
Must prepare accounts to UK GAAP standards

Tell me what it means to prepare accounts in accordance with IFRS

global accounting standards - the accounts will comply with the global standards and can be compared to companies around world.

What is the difference between UK GAAP and IFRS 16?

Treatment of leases is different

What is the basis of valuation under IFRS 13?

fair value measurement - defines fair value on the basis of the exit price notion - market based measurement

What is fair value?

Based on exit price notion and results in market based measurement

What has changed in relation to lease accounting/ IFRS 16?

How leases are recognised on balance sheet

When did the changes in relation to lease accounting/ IFRS 16 come into effect?

2019

What is FRS 102

Financial reporting standard applicable in UK and Ireland - single financial reporting standard

What changes have been made to FRS 102?

New lease accounting model and revised revenue recognition model

How have the changes to FRS 102 impacted on investment property?

Require it to be held at fair value with movements recognised in profit or loss.

What are statutory accounts?

Annual accounts or year end accounts required by Companies House - provide overview of companys financial performance over financial year

Why is good financial record keeping important to you?

To make sound financial decisions, stay organised, protect from potential losses or threats and look for opportunities

Tell me three ways you ensure that client’s money is handled properly

My firm doesn't handle client money, if we did would follow RICS client money handling professional standard - 1) hold all client money in client money account 2) not mix office and client money 3) provide written information to clients

What RICS guidance or Schemes do you adhere to in handling client money?

RICS client money handling practice standard

Explain your understanding of the VAT domestic reverse charge for building and construction services?

Applies to supplies of specified services between VAT registered businesses (especially construction) Responsiblity for accounting for VAT shifts to recipient of service - they add VAT to their VAT returns Anti-fraud strategy

When do changes to the reverse charge apply from?

Depends on goods / service - construction services from 1 March 2021

What is the impact of the reverse charge on VAT accounting?

The responsibility for accounting for VAT shifts to the recipient of the service - they must add VAT to their VAT returns

Is VAT included in a balance sheet or a profit and loss account?

Usually profit and loss account records sales and expenses net of VAT Balance of VAT owed to HMRC or reclaimed from HMRC is recorded on balance sheet

how do you account for the impact of inflation when reporting to clients?

Use BCIS inflation indices and adjust prices as necessary to account for changes

What were the key aspects of accounting that you have learned?

Recording profit and loss, cashflow etc to assist in making business decisions

What are different types of accounts?

Financial account Management accounts

What documents are included in company accounts?

Company accounts include: - statement of financial position (balance sheet) shows value assets, liabilites and equity - statement of comprehensive income (profit and loss account) Note to accounts Director report

How do company accounts impact you in your role?

Useful for contractor selection guide business planning

how does your cashflow support the client?

Ensures that we are solvent and can meet short term obligations and long term debts

What requirements does companies house define?

Confirmation statement Annual accounts

What accounting skills do you need to complete your role?

Basic knowledge of accounts to assist clients get best value from their projects - knowledge of accounts, both to assess financial viability of contractors and suppliers and to manage own business