Accounting

Question 1

What accounts are the most useful to you when doing the profits methods?

Answer 1

3 years prior to the valuation date as long as they are a full set of accounts

Question 2

What is a profit and loss statement?

Answer 2

Showd money that has gone in and our during a specific period

Shows how income (top line) is transformed into profit (bottom line) after all expenses and revenues deducted, this represents a period of time

Question 3

What can you do with a profit and loss statement?

Answer 3

Compare to previous years

Question 4

What is a balance sheet?

Answer 4

It is a snapshot of a company’s financial position

Details a company’s assets and liabilities at a specific point in time eg end of financial year

Question 5

What assets would you find on a balance sheet?

Answer 5

Cash, property and other investments

Question 6

What liabilities would you find on a balance sheet?

Answer 6

Borrowing, overdrafts and loans

Question 7

What does a balance sheet show?

Answer 7

Whether a company can pay its bills on time

Question 8

What is a cash flow statement?

Answer 8

It is concerned with cash flow in and out of a business.

It is a short term tool used to demonstrate/measure a company’s ability to pay its bills. It shows the current operating results as well as the change in balance sheet. It excludes any transactions that do not affect direct cash flow such a depreciation of assets.

Question 9

What is the main difference between a cash flow statement and a balance sheet?

Answer 9

Balance sheet reflects a specific period in time, cash flow statements and profit and loss accounts reflect a period of time.

Cash flow statements aren’t included in the annual accounts, they are used for management purposes.

Question 10

What are asset valuations?

Answer 10

To meet various legal obligations most companies and local authorities are obliged to revalue property assets 3 or 5 yearly. Public Sector organisations are required to maintain a register of property assets and represent these with their accounts.

Question 11

What are valuations for financial statements under GAAP?

Answer 11

Under GAAP ( Generally Accepted Accounting Principles) , property that is owner occupied must be valued at its existing use value o4 depreciated replacement cost

Question 12

What is financial accounting?

Answer 12

For external users such as investors, creditors. This corresponds to UK GAAP. These principles outline the major rules on how the accounting process should be carries out, info about profit and loss, balance sheets and cash flow statements

Question 13

What is management accounting?

Answer 13

Aimed at internal users such as management or board of directors. Purpose is to provide information which will help to control the company’s operation and make decisions. Eg sales forecasting. Does not have to comply with UK GAAP

Question 14

Why are accounting principles relevant to your pathway?

Answer 14

For setting up own practise, assessing covenant strength, looking at trade accounts for profits or MCC evidence

Question 15

What do companies need to provide every year under the Companies Act 2006?

Answer 15

Accounts reporting on the performance and activity of the company during the financial year, profit and loss account, balance sheet, record of assets and liabilitys

Question 16

What is the role of the auditor?

Answer 16

Checks whether the company has prepared its reports properly.

Question 17

What is UK GAAP?

Answer 17

The overall body of regulation establishing how company accounts must be prepared in the UK

Question 18

What are the International Financial Reporting Standards?

Answer 18

All listed European companies are required to report under IFRS.

In the UK, companies which ar3 not listed have the option to report under UK GAAP or IFRS

Question 19

What is ratio analysis?

Answer 19

The overall purpose is to assess a company’s financial strength

Question 20

Give me 2 types of ratio analysis

Answer 20

Profitability - how effective the company is at generating profits
Liquidity - the ability of the company to pay its way

Question 21

Where would you go to check the covenant strength of a company?

Answer 21

Dunn and Bradstreet
FAME

Question 22

How must financial statements be prepared?

Answer 22

Under FRS 102 . Fair value is to be used.

Question 23

What does FRS 102 require companies to do?

Answer 23

Reduce their tangible fixed assets. Owner occupied property is to be valued on the basis of euv and investment properties on the basis of MV.

Question 24

What are the three main types of financial statement you may come across when relating to a company?

Answer 24

Profit and loss statement
Balance sheet
Cash flow statement

Question 25

What is an asset/liability?

Answer 25

Assets are resources you own, liabilities are obligations you have. Asset owned, liability owed.

Question 26

Who are audited accounts prepared by?

Answer 26

Chartered or certified accountant

Question 27

When did IFRS 16 become effective and what does it require?

Answer 27

January 2019

Full cost of lease has to be accounted for on the balance sheet, occupiers obligation to pay rent will have to be recognised as a liability

Question 28

Is a service charge a liability, under IFRS 16?

Answer 28

No, thats accounted for separately

Question 29

What leases are exempt from IFRS 16?

Answer 29

Leases 12 months and shorter

Question 30

What is covenant strength?

Answer 30

The ability of a tenant to meet the covenants of the lease. Includes rents, service charge, FRI

Question 31

What is a D&B rating?

Answer 31

An indicator that assesses the creditworthiness of a company based on the financial strength of the business, payment behaviour, age of company, company size and other important factors

Question 32

What is the basis of valuation under IFRS 13?

Answer 32

Fair value
The price that an asset would be sold for, or liability transferred for, in an orderly transaction between market participants at the measurement date.

Question 33

What is FRS 102?

Answer 33

It applies to financial statements and is intended to give a realistic view of a businesses financial position and profit or loss for a period.

Question 34

What are statutory accounts?

Answer 34

Also known as annual accounts, they are a set of financial reports prepared at the end of each financial year.

In the UK, all private limited companies are required to prepare statutory accounts.

Question 35

Is VAT included in a balance sheet or profit and loss account?

Answer 35

If you are VAT registered, your income and expenditure is likely to be shown ‘net ‘ of VAT and is not included on the profit and loss statement. The balance of VAT owed to HMRC is recorded on the balance sheet.

Profit and loss no, balance sheet yes