This section covers some common questions about general accountancy, including explanations about what HMRC and Companies House are. We take a look at what accountants do, and explain about interest rates and the Bank of England. We also touch upon business plans and cover what such plans should contain. If you’re still not feeling confident with accounting, it’s definitely worth talking to a small business accountant about your questions.
What is Xero?
Xero is online or cloud accounting software. You can access all your important accounting information online anytime, anywhere: on your laptop, PC, tablet or phone.
What is HMRC?
HMRC stands for Her Majesty’s Revenue and Customs. It is mainly responsible for the collection of taxes, but also is involved with state support and the administration of regulatory regimes, such as the National Minimum Wage and the National Living Wage.
What is a Chartered Accountant
A Chartered Accountant is an accountant that has passed the examinations of a governing professional body that has been granted a royal charter. The professional body continues to monitor their members to ensure standards are maintained.
What is bookkeeping?
Bookkeeping is the recording of a business’s day to day transactions. These transactions include sales, purchases, receipts, and payments.
It is a fundamental part of an accounting system because if it is not up to date, keeping track of who owes what and what a business needs to pay out can become time consuming and difficult. In addition, not being on top of your bookkeeping may lead to cash flow difficulties and loss of custom.
Bookkeeping is typically carried out by an employee. These records will then usually be used by an accountant to generate the accounts (i.e. Profit and Loss account and Balance Sheet).
What is accounting software?
Accounting software records and processes accounting transactions. Once processed, the system can generate valuable information about the business:
- Debtors reports tell you who owes you money and how much you are owed.
- Creditors reports tell you how much money you owe and when it needs paying.
- Profit and Loss tells you how much profit/loss you are making.
While generating day to day information that is important to the running of the business, an accounting system also generates year end reports. These form the basis of the annual accounts which must be prepared for HMRC and if you are a Limited company, Companies House.
What types of accounting software are there?
In recent years, there has been a huge change in the accounting software market. Traditionally, accounting software was installed on your computer and that was the only device that could gain access to it. Therefore, if this was a ‘PC at work’, you had to go to work to get information from it and process transactions. This did change slightly with the introduction of remote access, but the whole process was cumbersome and inconvenient.
The innovation of Cloud Accounting Software turned the market upside down. The previous market leaders have been stunned by Cloud providers and are desperately trying to catch up. There are several advantages to Cloud Accounting Software over the traditional methods:
- Access on any device, anywhere with internet access.
- Access bank feeds directly. Previously a manual entry job, prone to error. Accounts were generally out of date because of the delay in processing transactions.
- Software is continually being updated and improved, previously, you would receive annual updates and improvement was a slow process.
If, however, your business is very simple and you are dealing with only a few transactions eg. Letting out a property. A spreadsheet may be the easiest and cheapest method.
What is the cloud?
The cloud is a network of remote servers that can be accessed with connection to the internet. These remote servers can be used to store, manage and process data. This allows safer storage of data and enables more flexible working.
For example, you can work from any device with access to the internet. Historically, the accounts package and information for a business would typically be kept on 1 or 2 computers in the office. With cloud accounting packages, this information can be accessed from anywhere with a smartphone, iPad, or laptop through the internet.
What is Companies House?
Companies House deals with the formation and closure of limited companies. It also deals with the collection of Statutory Accounts legally required to be produced by the limited company. These accounts are then made available to the public.
What is the difference between a PLC and a limited company?
In a limited company, ownership is determined by dividing up shares. In a standard limited company, these shares are traded privately. In a PLC, shares are traded publicly on a stock exchange.
What does an accountant do?
There are two main types of accountant:
Accountants in practice
Accountants in practice are typically hired to produce company accounts from the client’s accounting system. These accounts are then used as the basis of tax calculations to be filed with HMRC. The clients’ accounting systems will vary in level of sophistication, for example, basic spreadsheets or more advanced using accounting software.
Limited companies and PLCs have strict reporting requirements determined by Accounting Principles and Company Law. These disclosure requirements are complex and continually changing, therefore require the skills of an accountant.
Some organisations, due to their size and/or nature eg. Charities, are required to be audited. Accountants in practice will carry out this task which involves checking that the accounting records are reliable and that the accounts produced are a true and fair reflection of the performance of the organisation.
Accountants in industry
Accountants in industry generally perform the following tasks:
- Organise and supervise the accounts department for an organisation
- Produce monthly management accounts to present to the board
- Ensure that the accounting system has adequate controls to secure the assets of a company
- Produce calculations to aid in making investment decisions
Liaise with external auditors if applicable
How can I seek information on how to get into accountancy?
To become an accountant in practice
The larger accountancy firms usually take in graduates with a 2:1 and above. A financial degree can help your chances, but isn’t always necessary. It usually takes about 3 years to qualify, and during this time, you will study for exams and gain the necessary work experience required. Smaller firms may well take on trainees with lower degrees.
Some firms now take on trainees straight from A levels at 18.
To become an accountant in industry
As with accountants in practice, the larger companies would usually require graduates for their training schemes. If, for example, you have completed AAT exams and have relevant work experience, this may be enough of a skill base to apply for trainee jobs.
What does the Chancellor of the Exchequer do?
The Chancellor of the Exchequer has the overall responsibility for the work of the Treasury. His main roles are to raise revenue through taxation or borrowing and controlling public spending.
Who sets interest rates?
The Bank of England’s Monetary Policy Committee(MPC) meets each month to set interest rates. The MPC is made up of nine experts. Five are senior Bank of England staff and four are external members, appointed by the Chancellor. Each has a vote to decide what interest rate to set.
Who is the Bank of England and what does it do?
The Bank of England was established in 1694 to act as bank to the Government. It is the UK’s central bank and it is owned by the Government. It is different from other banks, in that it does not hold accounts or make loans to the public.
The main things the Bank of England does:
- Issues bank notes that are spent in shops.
- Sets interest rates.
Monitors the financial system of the UK to ensure that the public’s money is secure.
What is inflation?
Inflation is an upward movement in the average level of prices. Keeping inflation steady allows businesses to more accurately plan for the future, since they have a better idea of what to expect.
What is the Retail Price Index (RPI)?
The Retail Price Index (RPI) is a measure of inflation. It is published monthly by the Office of National Statistics and is calculated by measuring the change in price of a representative sample of retail goods and services.
What is Gross Domestic Product (GDP)?
Gross Domestic Product (GDP) is the monetary value of a country’s overall output of goods and services, usually within 1 year. In the UK, reports on the progress of this indicator are issued quarterly and are used as a guide to the health of the economy.
What is a business plan and what financial information should it include?
A business plan sets out the future strategy and financial development of a business, typically over 5 years.
Business plans can be external or internal reports. The content of which will vary depending on the purpose of the plan.
Banks will often request a business plan in order for a company to secure a loan. This plan may contain the following information:
- Cash flow forecast for the next 5 years, including loan repayment plan.
- Market analysis, market strategies and target customers as a justification for the sales information provided in the cash flow forecasts.
- Information on what the loan is to be used for.
- Company management structure.
- Balance sheet and financial analysis of current health of the company.