Accounting Principles

Question 1

What is included in a set of public limited company accounts? (4)

Answer 1

• Chairman’s statement
• Profit and loss account
• Balance sheet
• Corporate governance report

Question 2

What is a balance sheet? (4)

Answer 2

• Statement of financial position
• Shows its assets and liabilities at a given date (usually at the end of the financial year)
• Assets include cash, property, debtors, other investments
• Liabilities include borrowings, overdrafts, loans, creditors

Question 3

What is a profit and loss account?

Answer 3

• Income statement, summarising the business’ income and expenditure transactions, on an annual basis

Question 4

What is the difference between management accounts and audited accounts?

Answer 4

• Management accounts are prepared for internal use by a business and are not audited
• Audited accounts are prepared by a Chartered Accountant

Question 5

What is a cash flow statement?

Answer 5

Shows all the actual receipts and expenditures including VAT

Question 6

What is the difference between a cash flow statement and a profit and loss statement? (2)

Answer 6

• Cash flow shows how much money moves in and out of the business, where its going, where its coming from and how much cash is available at any one time
• Profit and loss illustrates how much money is left over after you’ve paid all your expenses

Question 7

What does IFRS 16 show? (2)

Answer 7

• The full cost of leases have to be accounted for on the balance sheet
• An occupier’s obligation to pay rent has to be recognised as a liability

Question 8

What are the benefits of profits and loss statements, balance sheets, and cash flow statements?

Answer 8

They can give a good indication of the financial health of a company

Question 9

What is the profits test?

Answer 9

Where a tenant would have to provide the past 3 years’ audited accounts showing a net profit of 3 times the annual rent

Question 10

What is the UK’s accounting principle?

Answer 10

UK GAAP - Generally Accepted Accounting Principle

Question 11

What is the international accounting principle?

Answer 11

IFRS (International Financial Reporting Standards)

Question 12

What is the difference between underlying profit and statutory profit? (2)

Answer 12

• Underlying profit is a company’s usual revenue and expenditure that doesn’t typically change much year on year
• Statutory profit includes one-off payments that will likely to not be repeated. For example when acquiring a new business for a merger

Question 13

What is the difference between rents received and rents receivable? (2)

Answer 13

Rents receivable is the title of the balance sheet which indicates the amount of rent that has been earned but not yet collected
Rent received are the monies that have actually been collected