Accounting Principles And Procedures

Question 1

What is included within a set of public limited company accounts?

Answer 1

• Chairman’s statement (CEO performance overview)
• Independent auditors report
• Income statement and statement of financial position
• Corporate governance report
• Remuneration report
• Other statutory information

Question 2

What is a balance sheet?

Answer 2

Statement of financial position - shows its assets and liabilities at a point in time, usually year end

Question 3

What are cash flows?

Answer 3

These show the actual receipts and expenditure and include VAT

Question 4

What is a profit and loss account?

Answer 4

Income statement - a summary of the business income and expenditure prepared usually on an annual basis

Question 5

What is CAPEX and OPEX?

Answer 5

Capital expenditures (CAPEX) are major purchases a company makes that are designed to be used over the long-term.

Operating expenses (OPEX) are the day-to-day expenses a company incurs to keep their business operational.

Question 6

What accounting controls (or restrictions) should be in place when selecting an accounting system?

Answer 6

There should be limited access to client records
Computer systems should allow users to only access parts of the system required for their role
Only senior management should have authority to open and close client accounts
Bond/deposits should be held separately

Question 7

What business requirements should be considered when selecting an accounting system?

Answer 7

When selecting an accounting system, firms should consider:

Number and type of client bank accounts required
Size of the client portfolio
Number of transactions to be processed
Types of reports that will be required

Question 8

Why assess a covenant strength?

Answer 8

Checking the tenants ability to pay rent- risk of default affects security of income.

Affects investment value of property

Question 9

What is a profits test?

Answer 9

Net profit of a business must be 3 times the rent for 3 consecutive years

Question 10

How would you assess the covenant strength of a tenant? And how could you improve the covenant?

Answer 10

• Reference from previous landlord and trade references
• 3 years audited accounts and business plan for new business - ask accountant to check this
• profits test
• creditsafe rating

Improve covenant - rent deposit and guarantor

Question 11

What is the purpose of a creditsafe report?

Answer 11

To look at the credit score given to a company based on a set of criteria - how the business is performing financially