Accounting Flashcards
Why is a reduced liability on the balance sheet important? What change has occurred in the last 10 years?
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How does IFRS 16 impact how occupiers report their property liabilities?
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What is EBITDA?
Earnings before interest, taxes, depreciation and amortisation
What are the contents of a public limited company accounts? (7 points)
“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”
What is a balance sheet and what does it include?
”- Statement of financial position showing assets and liabilities
- Assets: Cash, property, debtors
- Liabilities: Borrowing, loans, overdrafts”
What is a profit and loss account?
”- Income statement: summary of the business’s income and expenditure transactions
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What’s the difference between management accounts and audited accounts?
”- Management - internal use not audited
- Audited accounts - prepared by a Chartered or Certified Accountant”
What was contained within your companies profit and loss statements?
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Whats a consolidated set of accounts?
Number of individual subsidiary accounts
Whats a cash flow statement?
Shows actual receipts and expenditure to include VAT
What is International Finance Reporting Standards (IFRS) 16?
”- 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”
What is GAAP?
Generally Accepted Accounting Principles
Explain your understanding of tax depreciation
- 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
What are overheads?
- 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)
What is an Escrow account?
- 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.
Name the three types of accounting ratios
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
Why does a business keep company accounts?
- 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
What is financial leverage?
- 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
What are capital allowances?
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
What is a current asset vs a fixed asset?
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
