The accounting function - How does it work Flashcards
(20 cards)
What are the main aspects of a sole trader/partnership?
Personally liable
No separate legal entity
Reporting undertaken by a bookkeeper
Provides info to HMRC
What are the main aspects of a private limited company?
Shareholders own it but ran by directors
Likely to have a finance team
Legally obliged to produce accounts for shareholders
Reporting in set format
Compliance with accounting standards
What are the main aspects of a public limited company?
Separate legal entity
Reporting needs to be timely and accurate
Significant investment needed to ensure compliance with standards
Advantages and Disadvantages of a tall/hierarchical centralised structure?
Ad:
Smaller span of control for managers
Clear chain of command
Individual productivity will be higher
Dis:
Decision making will be slowed down
Risk of disconnection
More costs as more managers needed
Advantages and Disadvantages of a flat decentralised structure?
Ad:
Information is passed down quicker
Lower costs as less managers are needed
Dis:
Larger span of control for managers
Productivity falls if managers feel they are managing too many individuals
Who is the internal and external contact for the sales ledger system?
Internal - Sales Department
External - Dealing with customers, chasing debt etc
Who is the internal and external contact for the cashier system?
Internal - Sales Department
External - Bank
Who is the internal and external contact for the purchase ledger system?
Internal - Production department
External - Dealing with Suppliers
Who is the internal and external contact for the payroll system?
Internal - HR
External - Bank, HMRC, Pension companies etc
What are the four main headings for resources?
Equipment and material - Resources need to be adequate.
Human resources - adequate numbers to perform its function.
Information - Essential for up to date and accurate information readily available.
Financial resources - Money is available or can be made available in a period of time.
What is the directors area of control?
Major budgets
Company policies
What is the department managers area of control?
In charge of departmental budget and departmental buying
What is the line managers area of control?
Day-to-day decisions within limits of departmental budget, eg: Overtime working
What is the assistants area of control?
minor buying decisions
How can error and fraud be avoided?
Implementing policies
Whats the difference between error and fraud?
Error is over-ordering materials whereas fraud is manipulating figures for their benefit.
Why are financial statements produced for internal and external use?
Internal - planning and budgeting reasons
External - Provide information to stakeholders such as banks, suppliers, HMRC etc
What are management accounts?
Use transactional data to produce information for internal use to help managers and directors with their decision making.
Management accounts are produced on either a daily, weekly or monthly basis.
It can look at past data to help decisions which will influence the future.
How do businesses structure their business to comply with regulations?
They will employ individuals within the accounting system to deal with and external changes and amend any internal procedures to ensure the business complies
What are examples of changes in regulations to ensure compliance:
Changes in accounting terminology and accounting standards - Organisations will need to amend documentation to match the new terminology and amend internal procedures to suit the changes.
Changes in VAT Rate - Accounting functions such as accounts receivable, accounts payable and the cash book will need to change.
