Accounting Principles And Procedures (L1) Flashcards
(48 cards)
What are the two types of accounts organisations use and what are they used for?
- Financial Accounts
- Record and report to external parties
- Shareholders, creditors, tax authorities, regulatory bodies
- Comply with legal and regulatory standards, IFRS and GAAP
- Includes Balance Sheets, Profit and Loss Accounts, Cash Flow Statements - Management Accounts
- For internal management use for operational decisions
- Can be formatted and includes product profitability, cost analysis and departmental performance
- Includes budgets, forecasts, specific company operations
What is a profit and loss statement? And how can it be used?
- A financial report which summarises a company’s revenues, costs, expenses
- Shows whether a company is making profit or loss
How it can be used:
- Evaluates profitability
- Tracks financial health
- Informs decision making
- Assists in financial planning
- Attract investors and lenders
What is a balance sheet?
- Shows the value of everything a company owns, owes and is owed
- A financial account which shows a business’s assets and liabilities
- Shows the value of a business at any given point, useful for investors
Why do companies monitor cash flow?
- Maintain liquidity
- Manage debt and other financial obligations
- Supporting investment and growth opportunities
- Planning for seasonal or cyclical variations
- Enables informed decision making
- Building investor and stakeholder confidence
What are the typical financial assets of a surveying business?
- Company equipment and tools
- Outstanding client invoices; accounts receivable
- Cash and cash equivalents, savings etc
- Work in progress (WIP)
- Intangible assets
What are typical liabilities?
- Accounts payable, money owed for goods and services
- Debts / moneys owed to investors
- Equipment and vehicle financing
- Salaries and wages
- Employee benefits
- Insurance liabilities
What tools are available for checking company income and expenditure?
Gov.uk Companies House
- Shows filing history
- Annual financial statements, balance sheet, profit and loss accounts
- Cashflow statement
- Persons with significant control
- Company status and history
- Insolvency and liquidation information
What are management accounts?
- For internal management use
- For planning and budgeting
- Resource allocation
- Identify financial issues early
What are profit and loss accounts?
- Financial statement which shows a business’s revenue, costs and expenses
- Shows whether a business is in profit or loss
What are balance sheets, how are they used?
- Financial account with shows everything a business owns, owes or is owed
What are balance sheets, how are they used?
- Financial account with shows everything a business owns, owes or is owed
- Shows assets, liabilities and equity
How they are used:
- Assess financial health
- Investor insights
- Informs decision making
- Regulatory compliance and reporting
What are the accounting principles in your organisation?
- Secure network called workspace to store all financial information relating to a project
- Management and senior have access to higher level of financial statistics
- Shows invoice to date, invoices yet to be processed, time spent on the project, project costs, drawdown for future invoices
- Automatically generates figures on whether the project is is in profit or loss to inform decision making
Why is producing cost plans important?
- Allows you to check budget figures against actual costs
- Allow for cost tracking and financial management of projects
- Shows whether project to date is under, or over budget
- Informs decision making
- Allows for better delivery of projects
What are the 3 types of financial statement you may come across relating to a company?
Profit and Loss Statement
- Shows business revenue, costs and expenses
- Shows whether business is profitable over a period of time
Balance Sheet
- Shows everything a business owns, owes or is owed
- Shows assets, liabilities and equity
Cash Flow Statement
- Shows all incoming and outgoing cash for the business during a period of time
What is an asset/liability?
Asset
- Cash or property which is owned or owed by the business that is expected to provide future economic benefits
Liability
- An obligation which a company owes to others, typically arising from past transactions or events
Can you give me an example of each? Asset and liability?
Asset
- Accounts receivable
- Equipment / tools
- Cash / cash equivalents
- WIP
Liability
- Accounts payable
- Salaries / wages
- Employer benefits
- Business loans / debts
- Equipment and vehicle financing
- Insurance liabilities
What is the difference between financial and management accounts?
- Financial accounts are for external use, submitted to tax authorities, lenders, investors, regulatory bodies as per IFRS and GAAP
- Management accounts are for internal use to inform decision making, resource allocation, budgeting, forecasts, performance
What do you understand about the term Generally Accepted Accounting Principles (GAAP)?
- Accounting standards, principles and procedures that companies follows when preparing their financial statements
- Consistent, transparent, and comparable
- Standardised framework
- Auditability
How do companies know which reporting framework to comply with?
- Geographic location
- Public or private status
- Industry-specific regulations
Which reporting framework do publicly limited companies have to comply with?
IFRS - International Financial Reporting Standards
How would you assess the financial strength of an entity I.e for a valuation?
- Evaluate its financial health, performance and future prospects
- Compare with industry benchmarks
- Analyse financial statements
Can tell me about a common financial measure?
Return of Equity - ROE
- Measurement of companies profitability in relation to shareholder equity
ROE = Net Income/ Shareholder Equity
What is the acid test / ROCE / Working Capital Ratio / Gearing Ratio / net assets per share?
Acid test ratio = Current Assets - Invetory / Current liabilities
Return of Capital Employer ROCE
- Measure of a companies profitability and the efficiency with which it uses capital to generate profits
Working Capital Ratio
- Measures a companies short term ability to meet obligations
- Short term financial health
Gearing Ratio
- Measures the proportion of a companies capital that comes from debt
Net Assets Per Share
- Measure of a companies net worth allocated to each outstanding share of the company
- Provides an estimate of the company’s value on a per share basis
Can you tell me what the role of an auditor is?
- Review financial statements
- Assess a business’s financial procedures to ensure compliance with relevant legislation such as IFRS and GAAP
- Verify that financial statements accurately reflect the company’s financial position
