Accounting Principles & Procedures (Level 1) Flashcards
Explain fixed assets and fixed costs (overheads)
Fixed assets - Assets that are purchased for long-term use and are not likely to be converted quickly into cash (land, buildings, equipment etc)
Fixed costs - Business costs that are constant whatever the amount of goods produced (Rent, salaries etc)
What is a cash flow statement?
Financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company
What is a profit and loss account?
An account in the organisation that shows incomes and gains as credited and expenses and losses as debited, as to show the net profit or loss over a given period
What is difference between Gross and Net Profit?
Gross profit - Total revenue minus the costs of making a product or a service
Net profit - Net profit is the gross profit minus all other expenses (leases, wages etc)
What is a Balance Sheet?
A statement of the assets, liabilities, and capital of a business or other organization at a particular point in time. Detailing the balance of income and expenditure over the preceding period
Explain role of Auditor.
To make sure that the information reported on the financial statements is true and accurate and that financial statements are prepared according to GAAP principles
When is a P and L produced?
It can cover any period of time but it most commonly produced monthly, quarterly or annually
What does a P and L tell you?
1) All the income
2) All the cost of goods
3) All deductible business expenses
4) Accounting profit or loss result
What does a BS tell you?
1) Assets - things that business owns that have a financial value (current and long term)
2) Liabilities - what the business owes to others
3) Equity - Money held by the company (what belongs to the business owners)
What governs the production of accounts in the UK?
Companies house?
Do all firms have to produce accounts?
Yes
Why do you need a client account?
What does a P and L tell you about a firm’s liquidity/solvency?
What external sources are there in relation to determining a firm’s credit worthiness?
Company credit checking sources such as Experian etc
Why is a LLP used by professional firms?
Protected liability
