Accounting Principles & Procedures

Question 1

What is included on a set of Public Limited Company accounts?

Answer 1

Chairman’s statement
Auditors report
P & L account
Balance sheet
Corporate governance report
Remuneration report

Question 2

On the balance sheet, what are examples of assets?

Answer 2

Cash
Property
Investments held

Question 3

On the balance sheet, what are classed as liabilities?

Answer 3

Borrowings
Loans
Overdrafts
Creditors

Question 4

What are management accounts?

Answer 4

Internal accounts that are not audited

Question 5

What are consolidated accounts?

Answer 5

Individual subsidiary accounts for a company included within one set of accounts

Question 6

What is a cash flow statement?

Answer 6

Money going in and out of the business including actual expenditure and receipts

Question 7

What is IFRS 16?

Answer 7

The lease reporting standard under the International Financial Reporting Standards - leases must be noted as liabilities on the balance sheet

Question 8

What is the impact of IFRS16 on businesses?

Answer 8

Higher debt - impacts gearing ratio

Question 9

What is a gearing ratio?

Answer 9

Assesses a company’s reliance on borrowings

Debt/equity

Question 10

What is a profitability ratio?

Answer 10

Assesses a company’s ability to generate profit from stock

Income/revenue

Question 11

What is a liquidity ratio?

Answer 11

Assesses a company’s ability to turn assets into cash to pay liabilities

Assets/liabilities

Question 12

What is return on capital employed?

Answer 12

Compares relative profitability of companies

Net operating profit / capital employed

Question 13

What is the profit margin?

Answer 13

Measures the % of profit earned by a company in relation to its revenue

Expenses / revenue

Question 14

What are the benefits of IFRS 16?

Answer 14

Transparency
Consistency
Clarity on financial commitments

Question 15

What are financial accounts?

Answer 15

Accounts that are required by UK law

Question 16

What are capital allowances?

Answer 16

Tax relief on certain purchases made for the business; such as equipment

Question 17

What is insolvency?

Answer 17

A company’s inability to pay debts (liabilities exceed assets)

Question 18

What is Companies House?

Answer 18

An agency that incorporates and dissolves companies.

Question 19

What are debtors?

Answer 19

Entities that owe money to another entity

Question 20

What are creditors?

Answer 20

Entities that are owed money by another entity.

Question 21

What is a financial statement?

Answer 21

A forecast of income & expenditure that can be used to identify shortfalls and surpluses

Question 22

What is an S-Curve?

Answer 22

Refers to the shape of the expenditure profile in construction projects in graphical format

Question 23

What is an escrow account?

Answer 23

A separate account owned by a third party, held on behalf of 2 other parties.

Question 24

What are some key signs of insolvency?

Answer 24

Low credit rating
Liquidity rating below 0.75
Highly geared
Falling cashflow

Question 25

What is the Companies Act 2006?

Answer 25

Aims to regulate company behaviour, including Directors & shareholders. Covers formation/governance and financial reporting.

Question 26

What does it mean to produce accounts in accordance with IFRS?

Answer 26

Following a globally recognized set of accounting standards to create consistent and comparable financial statements

Question 27

What is the difference between UK GAAP and IFRS?

Answer 27

UK GAAP is utilised by SMEs in the UK, IFRS is a globally recognised standard

Question 28

What is fair value?

Answer 28

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Question 29

When was IFRS 16 implemented?

Answer 29

1st January 2019

Question 30

What is FRS 102?

Answer 30

The principal accounting standard in the UK financial reporting regime

Question 31

Explain the VAT reverse charge?

Answer 31

Tax collection method. It shifts the responsibility of reporting and paying the VAT from the supplier to the buyer

Question 32

What are statutory accounts?

Answer 32

Accounts required to be submitted by Companies House and HMRC annually.

Question 33

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

Answer 33

Balance sheet - yes P & L - no

Question 34

What is GAAP?

Answer 34

Generally Accepted Accounting Principles - set of accounting rules that publicly traded companies must use when preparing balance sheets, income statements, and other financial documents

Question 35

Which framework needs to be used for which type of company?

Answer 35

Publicly listed companies - IFRS. Smaller, privately owned companies have the option to choose between GAAP and IFRS.

Question 36

What guidance do you adhere to when handling client money?

Answer 36

RICS Professional Standard 'Client Money Handling' 1st Edn 2022

Question 37

What are the recent changes to FRS 102?

Answer 37

Sections on revenue and lease recognition - aligned with IFRS Other improvements and minor changes