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Flashcards in Accounting principles and procedures Deck (17)
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1
Q

What does a set of public limited company accounts include?

A
  • Chairman’s statement
  • Independent auditor’s report
  • Income statement (profit and loss account)
  • Statement of financial position (balance sheet)
  • Corporate governance report
  • Remuneration report
  • Other statutory information
2
Q

What does a balance sheet (statement of financial position) show?

A

Statement of the business’s financial position showing its assets and liabilities at a given date, usually at the end of a financial year
• Assets: cash, property, debtors and other investments
• Liabilities: borrowings, overdrafts, loans and creditors

3
Q

What does a profit and loss account (income statement) show?

A

Summary of the business’s income and expenditure transactions, prepared usually on an annual basis
Recorded on an accruals basis i.e. revenues are reported when they’re earned

4
Q

What does the cash flow statement show?

A

Shows actual receipts and expenditure. It is not included in the annual accounts but is prepared for management purposes

5
Q

What are the three primary types of financial accounts?

A
  • Balance Sheet
  • Profit and Loss Account
  • Cash flow statement
6
Q

What are management accounts?

A

Prepared for internal use by the business and are not audited

7
Q

Who are audited accounts prepared by?

A

Chartered or Certified Accountant

8
Q

When did IFRS 16 become effective?

A

1st January 2019

9
Q

What does IFRS 16 require companies to do?

A

Full cost of the lease has to be accounted for on the balance sheet. Occupiers obligation to pay rent will have to be recognised as a liability

10
Q

Is service charge counted as a liability under IFRS 16?

A

No, service charge payments are accounted for separately

11
Q

What leases are exempt from IFRS 16?

A

Leases 12 months or shorter

12
Q

What impact will IFRS have on commonly used financial ratios?

A
  • Leverage (gearing) increases – because financial liabilities increase
  • EBITDA increase – because cost of lease is represented as depreciation and interest which is taken off after EBITDA
  • Asset turnover (sales / total assets) decreases – because lease assets will be recognised as part of total assets
13
Q

What is a covenant strength?

A

Ability of a tenant to meet the covenants of the lease. Includes rents, service charge, repairing and insuring obligations and statutory obligations

14
Q

What is a D&B rating?

A

The D&B Rating is an indicator that assesses the creditworthiness of a company based on the financial strength of the business, payment behaviour, age of the company, company size and other important factors

15
Q

What are the two components comprising the D&B rating?

A
  • Financial Strength (e.g. 5A) rating is based on the tangible net worth as computed by D&B from financial statements supplied by the company. The rating indicates the credit capacity
  • Risk Indicator highlights the chance of business failure, ranging from 1 – 4 with one reflecting low/minimum risk and four reflecting high risk
16
Q

What is the risk indicator score produced by D&B based on?

A
  • Outstanding charges or slow payment experiences reported
  • Tangible net worth of the parent company
  • Pre-tax profit over total assets ratio
  • Values, ratios and trends from the Balance Sheet
17
Q

What do the two scores produced by D&B show?

A
  • Delinquency Score shows an organisation’s relative rank of delinquency against other organisations in the country by percentiles (100 = lowest risk, 1 = highest risk)
  • Payment Score (Paydex) shows an organisation’s payment timeliness based on their trade history (<80 = slow payments, 80 = prompt payments, >80 = payment before due)