Companies

Question 1

Directors

Answer 1

People who are appointed by the shareholders to run the company.

Question 2

Independent auditor (external)

Answer 2

An auditor who expresses an opinion on the financial statements in an auditor’s report but does not work for the company.

Question 3

Internal auditor

Answer 3

An auditor, who supervises the preparation of the financial statements, is responsible for internal control and is employed by the company.

Question 4

Shareholders

Answer 4

People who own the company.

Question 5

South African Revenue Services (SARS)

Answer 5

The government department to whom the company must pay income tax on the profits and VAT when due.

Question 6

Auditor’s report

Answer 6

This is an opinion given by a qualified person on whether the financial statements are reliable or not

Question 7

Qualified auditor’s report

Answer 7

When the auditors find the financial statements acceptable EXCEPT for some aspects that need to be changed, fixed or investigated

Question 8

Unqualified auditor’s report

Answer 8

When the auditors find the financial statements acceptable in ALL respects.

Question 9

Disclaimer

Answer 9

When the auditors are not prepared to express an opinion on the financial statements (because they are too unreliable).

Question 10

Balance Sheet

Answer 10

This statement reflects the assets, liabilities and net worth (owners’ equity of the company). Another term for this is ‘Statement of Financial Position’.

Question 11

Cash Flow Statement

Answer 11

This shows the flow of cash in a company (money coming in and money going out)

Question 12

Income Statement

Answer 12

This statement shows the profit or loss made from business operations (income and expenses). Another term for this is ‘Statement of Comprehensive Income’

Question 13

Tax Assessment

Answer 13

This is issued by SARS to confirm the amount of income tax which the company has to pay based on profits.

Question 14

Authorised Share Capital

Answer 14

The maximum number of shares a company can sell.

Question 15

Dividends

Answer 15

That portion of the profits (after tax) which has been approved to be shared amongst the shareholders (total dividends = interim + final).

Question 16

Interim dividends

Answer 16

Dividends that are paid to the shareholders during the year.

Question 17

Final dividends

Answer 17

Dividends that are declared (recommended) to the shareholders at the end of the financial year.

Question 18

Income tax

Answer 18

Tax the company pays to SARS on its profits

Question 19

Issued Share Capital

Answer 19

The number of shares that have actually been sold to shareholders. Use number of issued shares to calculate dividends.

Question 20

Limited Liability

Answer 20

The liability of the shareholders is limited to their investment in the company (they cannot lose their personal assets).

Question 21

No par value

Answer 21

There is no value attached to shares until they are issued.

Question 22

Provisional Tax

Answer 22

Payments made to SARS during the year based on estimated profits (every 6 months).

Question 23

Retained Income

Answer 23

A portion of the profits after tax that are not paid out to the shareholders in dividends but kept (retained) for future growth of the company.

Question 24

Issue Price

Answer 24

The price at which shares are issued to the public.

Question 25

Shareholders earnings

Answer 25

Net profit after tax.

Question 26

Shareholders for dividends

Answer 26

The amount still owing to shareholders for dividends declared but not yet paid.

Question 27

Buy back shares

Answer 27

Issued shares that have been repurchased by the company and are retired or cancelled.

Question 28

Cash Inflow

Answer 28

Money coming into the business. This amount does NOT have brackets. (e.g. sale of shares)

Question 29

Cash Outflow

Answer 29

Money going out of the business. This amount HAS brackets. (e.g. bought a fixed asset for cash)