Accounting Flashcards

1
Q

Why is a reduced liability on the balance sheet important? What change has occurred in the last 10 years?

A

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2
Q

How does IFRS 16 impact how occupiers report their property liabilities?

A

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3
Q

What is EBITDA?

A

Earnings before interest, taxes, depreciation and amortisation

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4
Q

What are the contents of a public limited company accounts? (7 points)

A

“1. Chairmans statement
2. Independent auditors report
3. Income statement (profit and loss)
4. Statement of financial position (balance sheet)
5. Corporate governance report
6. Remuneration report
7. Other statutory information”

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5
Q

What is a balance sheet and what does it include?

A

”- Statement of financial position showing assets and liabilities
- Assets: Cash, property, debtors
- Liabilities: Borrowing, loans, overdrafts”

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6
Q

What is a profit and loss account?

A

”- Income statement: summary of the business’s income and expenditure transactions

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7
Q

What’s the difference between management accounts and audited accounts?

A

”- Management - internal use not audited
- Audited accounts - prepared by a Chartered or Certified Accountant”

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8
Q

What was contained within your companies profit and loss statements?

A

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9
Q

Whats a consolidated set of accounts?

A

Number of individual subsidiary accounts

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10
Q

Whats a cash flow statement?

A

Shows actual receipts and expenditure to include VAT

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11
Q

What is International Finance Reporting Standards (IFRS) 16?

A

”- Changed how occupiers regard their property liabilities
- Lease accounting standards
- Full cost of lease has to be accounted for on the balance sheet
- Rent to be recongised as a liability/service charge accounted for separately
- Leases 12 months or shorter are exempted”

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12
Q

What is GAAP?

A

Generally Accepted Accounting Principles

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13
Q

Explain your understanding of tax depreciation

A
  • Tax depreciation is where the declining value of an asset is offset against a companies taxable profit.
  • Depreciation in value can be recorded as an expense in order to reduce the amount of taxable income.
  • This can be applied on things such as plants, tools, vehicles, computers, furniture and buildings
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14
Q

What are overheads?

A
  • The operating cost of the business that are incurred on an ongoing basis
  • Overheads can be both fixed or variable
  • Example of fixed overheads - rent (fixed)
  • Examples of variable overheads - delivery or utility charges (fluctuating)
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15
Q

What is an Escrow account?

A
  • Escrow accounts are contractual agreements that are used as financial instruments within a transaction.
  • Asset or currency being transferred between two primary parties is held by an intermediary third party.
  • The currency being exchanged is held securely by the third party until each of the two parties have met their contractual obligations allowing the money to then be transferred.
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16
Q

Name the three types of accounting ratios

A

Liquidity ratios - considers an organisations ability to pay their debt obligations and assess its margins of safety by looking at a number of metrics
Profitability ratios - assess an organisations ability to generate profits from its sales operations and shareholding equity
Gearing ratios - Compare capital within the company against its debts. The gearing is a measure of companies financial leverage and sets out what proportions of the firms activities are funded by shareholders vs its creditor funds

17
Q

Why does a business keep company accounts?

A
  • Record and measure a companies profitability
  • Tax calculation including tax calculating taxable deductibles
  • Legislation requires companies to keep accurate records
  • Business growth is encouraged by identifying profitable operations whilst also allowing management to minimise any loss making activities
18
Q

What is financial leverage?

A
  • Concept of using borrowed funds in the form of debt to enhance business operations and increase the companies profitability and rates of return
  • If the rate of return is higher than the interest charged on borrowed funds then profit can be generated
19
Q

What are capital allowances?

A

Capital allowances allow tax payers to gain tax relief by using their expenditure to be deducted from their taxable income
- Only allowed on certain categories for example:
Plant & Machinery
Integral parts of structure & buildings (lifts/escalators)
Research & Developments
Patents

20
Q

What is a current asset vs a fixed asset?

A

Current assets - Normally converted into cash within one financial year and regarded as assets that allow day to day operation of the business
Fixed assets - Typically cannot be converted into cash within one year. These kind of assets the company owns on a long term basis. Office furniture, machinery