1: Financial Management Flashcards
Internal reporting supports…
The managerial decision making process assisting with management of the businesses assets, Liabilites, income and expenses.
External reporting enables…
Users to access the performance, position and liquidity of an entity.
Internal control looks to…
Protect assets, current and non current
Have information available for managers to accurately view compliance polices
Principles of internal control are…
Segregation of duties
Establishing lines of responsibility
Appropriate security of assets and records
Installation of mechanical and electronic devices
Adequate recording and documentation systems
Instillation of verification and checking process
The distance of authorization process
Employment of competent and reliable staff
Two key elements of Risk and return
Security- how safe is my investment
Profitability- how much money can I make on my investment
Definition of income
Increase in economic benefit during accounting period in the form of inflow or enhancement of assets.
Definition of expense
Decrease in economic Benefit.
Outflow or depletion of assets of incurring of liabilities
Define profitability
Entities compactly to earn income in excess of expenses
Definition of an asset
Resources controlled by an entity as a result of past events from which future economic benefit is expected.
Define liability
Present obligation of the entity resulting from past events which is expected to bring future outflow from the resources embodying economic benefit.
Security is defined as
The entities capacity at a particular date to pay its debts when they are due.
Define ethics
A set of principles or morals. Rules of conduct.
List 5 ethical Characteristics of a person.
Honesty and integrity Promise keeping Loyalty Fairness Caring Respectful Responsible Striving for excellence Accountability
CPAA codes five fundamentals to world as accountants
Integrity Objectivity Professional competence and due care Confidentiality Professional behaviour
Describe ethical behaviour
Behaviour that is fair, Objective and consistence and that considers the interest of all affected.
Doing what is right, not just legally required.
What are the two methods of financing?
Equity financing or money contributed by the owner.
Debt financing, borrowings or money provided for limited time by someone else.
When considering finance what 5 issues need to be considered?
Cost of finance Purpose of finance Need to relay the finance Taxation effect Effect on the capital structure
What is long term finance used for?
Purchase of asset that are expected to generate returns over larger period of time.
What is an ordinary share?
Fully paid shares that come with voting rights at company meeting but no entitlement to dividend
What is a preference share?
Entitle reviving of capital.
In event of liquidation they also receive dividend before ordinary shareholders.
Limited voting rights
What is a contributing share?
These are partly paid shares. Paid in instalments and when fully paid become ordinary
What is company’s options?
Shareholder can buy at fixed price the right to purchase shares in company over a specific time period
What is public offering?
The initial share through the stock exchange.
What is private placement?
The private sale of shares to small groups of investors such as banks and insurance companies.
