Financial reporting Flashcards
(75 cards)
What does a steward do (stewardship)?
Has control over finance, purchasing & hiring decisions. Needs to show records of in and outcomes.
What defines a private company, sole trader & partnerships?
- No public shareholders
- Need for record keeping and statements: for tax, decisions, bank loans, equity.
What defines a public company?
- Shareholders, traded on stock exchange.
- May have controlling shareholder or no overall control.
- Need to account for investor needs, less freedom
Need to account for:
Managers - scope for fraud -> need to report regularly.
Owners - no access to company records.
Investor needs
What are the 2 accounting standards?
US GAAP: Generally Accepted Accounting Principles.
IFRS: International financial reporting standards.
What are the 3 primary financial reports?
Statement of financial position: at a moment in time (assets, liabilities, equity)
Statement of profit & loss: commercial substance instead of cashflow. For a period of time (revenue + expenses + profit)
Statement of cashflows:
Cashflows. For an accounting period (operating, investing and financing activities)
What is an audit?
A formal examination of an organization’s or individual’s accounts or financial situation
What is an internal audit?
- Controls and procedures to protect assets.
- Avoid fraud
- Give reasonable assurance
What is an external audit?
- Provide external reasonable assurance
- Follows standards
- Review work of international audit
- Identify and report problems
What is the difference between financial accounting and management accounting?
Financial:
- Backward looking
- Key user outside firm
- Reports highly standardised
- Regular schedule
Management:
- Forward looking
- Inside firm
- Free form and unregulated
Define assets
A present economic resource controlled by the entity a result of past events e.g. cash, property.
Current: <12 months
Non-current: >12 months
Define liabilities
A present obligation of the entity to transfer on economic resource as a result of past events e.g. taxes, loans, employee pay.
Current and non-current
Define equity
Residual interest in the assets of the entity after deducting all its liabilities.
Assets - Liabilities = equity
What assets are excluded from the the statement of financial position?
- Human resources
- Intangible assets e.g. trademarks, logos
Define owners equity
- Share capital and premium
- Retained earnings (profit after tax)
What is the going concern principle?
Financial statements are prepared on the assumption that the reporting entity is a going concern and will continue in operation for the foreseeable future.
Define credit sale
- Firms transact most business with one another on credit terms.
- Typically 30-60 days.
Define trade receviable
- Amounts owed from credit sales.
- Used to record invoices issued for goods sold on credit.
Define trade payables
- Amounts owed for good bought on credit.
- Records invoices from suppliers bought on credit
How do you calculate trade receivables at the end of a period?
Trade receivables at end period = Trade receivables at start + revenue from credit sales - payments received from customers
What does the statement of profit and loss record?
Revenue & expenses
- Where profit comes from and where it goes.
What are the 3 different means of payment for goods and services?
Cash on delivery: paid at time received.
Paid in arrears: paid at a later date.
Paid in advance: paid for in advance.
Why can’t cashflow be used for profit?
- Timing mismatch makes it impossible to produce a value profit for accounting period.
What is the accrual principle?
Revenue should be recognised when earned regardless of when paid for. So should expenses.
What are the IFRS revenue recognition requirements?
- Based on satisfying contractual obligations.
- Returns can be reliably estimated.
- Revenue and costs can be measured reliably.
