Accounting Principles and Procedures Flashcards
What is a profit and loss statement?
shows income, expenditures and profitability over a period of time.
What is a cash flow statement?
total money amount being transferred in and out of a business in a given period, doesn’t consider depreciation etc.
What is a balance sheet?
statement of assets, liabilities and owner’s equity at a particular point in time.
What is the difference between a cash flow statement and a cash flow forecast?
A statement sets out the incomings and outgoings of a business for a prior period. In contrast, cash flow forecasting looks ahead to predict future cash flows and balances.
What is the difference between profit and loss statement and a balance sheet?
balance sheet screenshot in time whereas income statement over period
What is the difference between a cash flow statement and a profit and loss statement?
The main difference between a profit and loss statement and a cash flow statement is that a profit and loss statement measures the profitability of the business model while a cash flow statement shows the cash going into and leaving a business over a specific period.
What financial documents need to be submitted by RICS firms and how often does this need to occur?
- Cash flow statement
- Profit and loss statement
- Balance sheet
- (Retained earnings)
To be submitted yearly
What is owners equity? What financial statement calculates the owners equity?
The amount of equity an owner has after deducting liabilities.
What is an asset?
resources that generate an economic benefit, e.g. cash / buildings
What is a liability?
a financial obligation to debtors, e.g. loans / mortgages.
What is the difference between income and losses?
Income – money or cash equivalent coming into a business whereas loss is money going out of the business.
What is an audit?
An inspection of a company’s accounts by an independent body.
What are accounts?
the process of keeping company accounts
What is the purpose of financial statements?
- To provide to RICS
- To allow shareholders , managers and investors to make informed future business decisions and understand the performance of the business.
- To ensure that there is no wrongdoing or illegal activity.
What is the purpose of a cash flow forecast?
looks ahead to predict future cash flows and balances. assess project delays, informs client on likely payment
What does GAAP and IFRS stand for? What are they and what is their purpose?
Generally Accepted Accounting Principles and International Financial Reporting Standards. Two accounting standards adhered to when financially reporting.
How does GAAP and IFRS differ?
GAAP – from US and rules based and more detail. IFRS – international and principles based, provides less detail so more room for interpretation.
What is included in a cash flow forecast?
certificate no., application made, forecast valuation, actual valuation, variance, forecast net payment, actual net payment, certificate date.
What are capital allowances?
a type of tax relief for businesses allowing you to deduct the value of an item from your profits before paying tax.
What is financial leverage?
the strategic endeavour of borrowing money to invest in assets.
What are the key differences between GAAP and IFRS?
- GAAP is a framework based on legal authority while IFRS is based on a principles-based approach.
- GAAP is more detailed and prescriptive while IFRS is more high-level and flexible.
- GAAP requires more disclosures while IFRS requires fewer disclosures.
- GAAP is more focused on the historical cost of assets while IFRS allows for more flexibility in the valuation of assets.
When should a cash book and client ledger be used?
General client account is cash book and client ledger.
Discrete client account is cash book.
What is the difference between a management and financial account?
Managerial accounting information is aimed at helping managers within the organization make well-informed business decisions, while financial accounting is aimed at providing financial information to parties outside the organization.
What are signs of insolvency when undertaking checks on accounts?
- Low credit rating
- Falling working capital ratio as taken too many projects on
- Reliance on loans
- Falling cash flow statement
- Low return on equity
