Accounting Principles Flashcards
Mandatory (10 cards)
What accounts are most useful to a valuer when doing the profits method?
Three years previous to the valuation date as long as they are a full set of accounts.
What is the difference between a profit and loss statement and a balance sheet?
Profit and loss statement is an account which shows the profit/loss earned by company during a particular period, normally one financial year.
Balance sheet is a statement/snapshot showing the list of assets and liabilities of a company on one particular day.
Give an example of a liability that you would expect to see on a balance sheet?
Any non-payments, borrowing, overdrafts and loans.
What do companies need to provide every year in accordance with the Companies Act 2006?
All companies must file their annual accounts with Companies House and ensure that those accounts give a true and fair view.
What is the role of the auditor?
An auditor is a person who makes an independent report to a company’s members as to whether the company has prepared its financial statements in accordance with Company Law.
The auditor conducts the audit in accordance with International Standards on Auditing.
What is the purpose of a cash flow statement?
Cash flow demonstrates an organisation’s ability to operate in the short and long term, based on how much cash is flowing into and out of business.
What does a balance sheet show you?
The liquid assets of a company i.e. cash. In addition any physical assets such as property, equipment and any other investments.
It’s meant to show investors that the company has the assets to manage and pay it’s bills and liabilities on time.
What are the main types of ratio analysis used to assess a company’s financial strength?
Liquidity - the ability of the company to pay its way (solvency). More companies fail due to cash flow than any other reason.
Investment / shareholders - information to enable decisions to be made on the extent of the risk and the earning potential of a business investment
Gearing - information on the relationship between the exposure of the business to loans as opposed to share capital.
Profitability - how effective the company is at generating profits given sales and / or its capital assets.
Financial - the rate at which the company sells its stock and the efficiency with which it uses its asset.
What valuations do you carry out for financial statements under UK GAAP?
Property that is owner-occupied must be valued at its existing use value (EUV) or through depreciated replacement cost (DRC).
Why do chartered surveyors in your pathway need to understand and be able to interpret company accounts?
How auditing works
What figures are for their valuations
To check that client in compliance with IFRS or UK GAAP
Consider for your own business accounts
For assessing the covenant strength of potential tenants and landlords
For assessing the financial strength of contractors and those tendering for contracts
For profits-method valuation (for leisure properties)
For asset valuations.
For assessing competition.
