05 Accounting Principles Flashcards
what is management account/company account
Management Account: provides information to people within an organization/for a project (confidential);
Company Account: it’s a legal requirement in most countries; Provides information to people outside the company; (non-confidential)
What is Profit and loss Statement
‘a statement that shows income and expenditure for a project or a company to what profit or loss is being made during a period’
What is cash flow statements
Ø Essentially the cash flow statement is concerned with the flow of cash in and cash out of the Business or Project
Ø It’s used as an analytical tool
Ø The statement of cash flow is useful in determining short term visibility of a company or project, particularly its ability to pay bills
What is a balance sheet
A balance sheet is a financial statement that reports a company’s assets, liabilities and shareholders’ equity at a specific point in time, and provides a basis for computing rates of return and evaluating its capital structure. It is a financial statement that provides a snapshot of what a company owns and owes, as well as the amount invested by shareholders.
What is fixed assets and current assets
Ø Fixed assets tend to be assets that are available at all the time which includes office building, plants, equipment’s like vehicles, machinery, computers etc.
Ø Current assets means Cash in Bank and any other income
What is insolvency and Bankcruptcy
Insolvency is a financial state where a company or individual is unable to pay their debts on time, while bankruptcy is the legal process when a person has been declared insolvent.
In some cases, insolvency can lead to bankruptcy if solutions are unable to address the current financial situation.
Insolvency doesn’t mean bankruptcy but bankruptcy would mean insolvency.
What is taxation
Ø It’s a levy charged by government on individuals
Ø Normally tax is divided into direct tax (income tax) and indirect tax (sales tax, employment tax etc.)
Ø It is the revenue for the government for various expenditures of the nation.
What is auditing
Ø Auditing refers to an official examination of an organization accounts to ensure that money is spend correctly
Ø Different types of Audit such as Financial Audit, Tax Audit, Cost Audit, Management Audit etc.
Why is the knowledge of accounting important for a chartered surveyor?
- to be able to access and evaluate the financial stability of firm so that you can manage if effectively;
- To be able to understand financial health of a project to protect clients interest
- To understand you own financial health
What is meant by Credit Control?
It is the financial strategy introduced by the business to offer and manage the credit.
What is role of an auditor?
Auditor is an independent bodies tasked to perform fair assessment of company’s financial statement and issue an audit report based on the result of the audit.
What is ratio analysis
Ø It is a tool which is used to analysis of the performance of a company (success, failure, and progress) by using published accounts such as income statement, balance sheet, cash flow statement, levy charged by government on individuals.
Ø It enables the business owner to spot trends in a business and to compare its performance and condition with average performance of similar business in the same industry
ØIt provides all important early warning indications that allow you to solve your business problems.
Some useful formula:
Ø Gearing Ratio= long terms liabilities/equity shareholder funds
(higher values means higher risks)-not a good sign
Ø Current ratio=total current assets/total current liabilities
(advisable to have 2:1 ratio)
Ø Quick ratio= (cash+ governments securities + receivables)/total current liabilities
(concentrates heavily on liquid assets. Also called as Acid-test ratio)
Ø Profitability Ratio: Net Profit/Sales
It measures the profitability of an organization
Indicates how well a firm is performing in terms of its ability to generate revenue.
