1. Generic Questions (Accounts) Flashcards
What would you find in a set of financial accounts?
- P&L
- Balance sheet
- Cash flow (sometimes not)
- Independent auditors report
What would you expect to see in a profit and loss statement?
Statement that presents profitability of a business at a specific time. “What happened this year”?
This would include:
* revenue
* direct costs (paycheck)
* In direct costs (lease)
This shows the profitability of the company. Therefore you can extract the Ebitda from a P&L.
What is the difference between direct and indirect costs?
Direct: e.g. timesheets (labour)
Indirect: e.g. lease of building, marketing
Can you tell me about a common financial measure?
EBITDA
What is EBITDA?
Earnings before interest tax depreciation amortisation
- What you have earned in a year, without taking into account taxes and interest as these cannot be influenced by the company.
- Depreciation and amortisation are financial assumptions
Why do you look at the EBITDA?
Provides a picture of the profit of a company, purely generated by its main activities during a set amount of time - without the influence of external factors
What is balance sheet and what is included?
Part of the financial statement of a company at a specific time (usually year end) -
- company’s assets (tangible and intangible)
- And liabilities (current and non current)
- And equity
Assets can include cash, property, debtors and other investments held.
Liabilities can include borrowings, overdrafts, loands and creditors
What financial statement would you look at to assess the liquidity of a business?
the balance sheet
- Short term - is the company’s able to pay short term debt (with in the next year).
- Long term - to understand of there is an on going concern or issue a with the company.
What is a Current liability vs non current liability?
due within 1 year vs due in the long term
What is equity of a business?
contribution by shareholders to run the business (shares, asset, cash)
What is a cash flow statement and why are they used?
Cash movement within 1 year. Shows how much cash you have at the end of the year.
Operating Activities – Cash generated from core business operations, including receipts from customers, payments to suppliers, wages, and taxes.
Investing Activities – Cash spent on or received from investments, such as purchasing or selling property, equipment, or securities.
Financing Activities – Cash flows related to borrowing, repaying debt, issuing shares, or paying dividends.
What is capital expenditure?
Capital expenditure (CapEx) refers to money spent by a business to acquire, upgrade, or maintain long-term assets such as property
What is revenue expenditure?
Refers to the day-to-day operating costs of a business, such as wages, rent, and maintenance, which are fully expensed in the income statement.
Where would I look to get an idea of a company’s net book value?
Balance sheet: Assets - Liabilities = NBV
Can you name 2 accounting ratios? How are they calculated and what are they use for?
1) Liquidity ratio
2) Gross profitability margin
Why are audited accounts needed?
To ensure financial accounts meet regulatory requirements. Mainly fraud prevention.
What are the differences between management and audited accounts?
Management accounts - prepared for internal use by a business and are not audited
Audited accounts - prepared by a chartered or certified accountant
What is the role of an auditor?
Independent review of accounts
How do PLC company account differ
Public company - regardless of size require mandatory audit. Mandatory full accounts. IAS regulations. Statement of equity (all of the shares)
What is IFRS 16 and its implications?
Lease accounting standard with which all companies have to comply when using the IFRS in respect of reporting property liabilities.
Whereas before Jan 2019, this was not a requirement.
What does it mean to prepare accounts in accordance with the IFRS?
Following the principle a and regulations provided by IFRS.
An occupier’s obligation to pay rent has to be recognised as a liability, though service charge payments would be accounted for seperately.
