Financial Statements Flashcards
(24 cards)
Aim of financial statements (4)
To identify how well the business has performed
To identify the value of the assets and liabilities
To help understand the cash flow position of the company
To communicate these thing to the users in a clear a manner as possible
What is the difference between sole trader and partnership?
Partnership has more than one proprietor
Who has unlimited liability?
Sole trader and partnerships
How is a separate legal entity?
A company
What is the difference between a Ltd and Plc?
Plc’s shares are traded publicly. Ltd is not traded publicly.
Advantages of limited company
Limited liability status
Easier to raise finance
Company continues to operate regardless of ownership
Taxes under corporation tax
Disadvantages of limited company
More regulation to comply with
Accounts submitted to companies house
Accounts of larger companies must be audited
Issues of shares are highly regulated
What do IFRS foundation do?
Appoint IASB, Advisory Council & Interpretations Committee members
Raise funds for the IASB
Monitor the IASB effectiveness
What do IFRS Advisory Council do?
Take recommendations from individuals, corporations, auditors and national standard setters and provide advice to the IASB on priority areas of accounting.
What do the IASB do?
Set International Accounting Standards (IFRS’s and previously IAS’s)
What do the IFRS Interpretations committee do?
Reports to the IASB with interpretations of IFRSs and in the context of the Framework, provides guidance on financial reporting issues not specifically addresses by IFRSs
What does the Companies Act 2006 state are Directors responsibilities?
Keeping proper records
Preparing financial statements, having them audited and presenting to shareholders
Filing accounts with Companies House (with 6 months for plc and 9 months for Ltd)
What are the different types of share values?
Nominal
Market
Allotted share capital
What are ordinary shares?
Shares in equity section of financial position
Sometimes called equity shares
Can receive dividend
Holders entitled to vote
What are Preference shares?
Carry the right to a fixed rate dividends
Dividends must be paid before ordinary dividends
Do not have voting rights
Is the framework an actual accounting standard or a set of principles?
A set of principles
What are the 8 sections of the framework?
1) the objective of general purpose financial reporting
2) qualitative characteristics of useful financial information
3) financial statements and the reporting entity
4) the elements of financial statements
5) recognition and derecognition
6) Measurement of elements
7) presentation and disclosure
8) concepts of capital maintenance
What are the qualitative characteristics?
Relevance
Faithful representation
What are the enhancing qualitative characteristics?
Comparability
Verifiability
Timeliness
Understandability
What is the definition of an asset?
A present economic resource controlled by the entity as a result of past events.
An economic resource is a right that has the potential to produce economic benefits.
Define liabilities
A present obligation of the entity to transfer an economic resource as a result of past events.
Define equity
The residual interest in the assets of the entity after deducting all its liabilities.
Define income
Increase in assets or decreases in liabilities, that result in increase in equity, other than those relating to contributions from holders of equity claims
Define expenses
Decreases in assets or increase in liabilities, that result in decreases in equity, other than those relating to distributions to holders of equity claims.
