Accounting and Principles Flashcards
What are some accounting standards?
Generally Accepted Accounting Principles (GAAP)
International Financial Reporting Standards (IFRS)
International Accounting Standards (IAS)
What is GAAP?
UK GAAP, is the overall body of regulation establishing how company accounts must be prepared in the United Kingdom.
The chief standard-setter is the Accounting Standards Board (ASB), which issues standards called Financial Reporting Standards (FRS).
What is Amortization?
Amortization is an accounting technique used to periodically lower the book value of a loan or an intangible asset over a set period of time.
What are issues with EBITDA?
Can be misleading because it does not reflect the cost of capital investments like property, plants, and equipment.
What is a balance sheet?
Financial statement at a given point in time. A snapshot of assets and liabilities (owed amounts).
What is a profit and loss account?
The profit and loss statement is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period.
What is a cash flow?
Translates the project programme into the client’s anticipated financial commitment
What is a balance sheet useful for?
BS’s assist in raising finance –lenders/investors will want to see at least 3 yrs accounts
Shows how the business is being funded and how the funds are being used.
Required for PLCs as Part of annual accounts for Companies House, HMRC, shareholders, lenders and investors, purchasers, employees, and trade unions.
How would you test a companies financial strength?
Dun & Bradstreet - D&B Global Financials standardises the base reporting data and produces analytics all enabling true and fair comparisons.
Comparability of: Balance Sheets, Profit & Loss accounts and Ratios enable robust decisions and reviews of organisations fromdifferent countries.
What are some ratio analysis you could complete?
Liquidity Ratios -company’s ability to pay off its short-term debts, using the company’s current or quick assets.
Solvency Ratios -compare a company’s debt levels with its assets, equity, and earnings, to evaluate the likelihood of a company staying afloatover the long haul. Examples of solvency ratios include: debt-equity ratios, debt-assets ratios, and interest coverage ratios.
Profitability Ratios -how well a company can generate profits from its operations. Profit margin, return on assets, return on equity, return on capital employed, and gross margin ratios.
Efficiency Ratios -also called activity ratios -how efficiently a company uses its assets and liabilities to generate sales and maximize profits. Key efficiency ratios include: turnover ratio -IRR/ROCE
Gearing ratio -is a measure of financial leverage that demonstrates the degree to which a firm’s operations are funded by equity capital versus debt financing.
Why do companies report their profits and loss and provide a balance sheet in their company accounts? What do they include?
The balance sheet reports the assets, liabilities and shareholder equity at a specific pointin time, while a P&L statement summarizes a company’s revenues, costs, and expenses during a period of time.
What is the difference between management and statutory accounts?
Statutory accounts are required by law and all private limited companies are required to prepare these at the end of each financial year. A balance sheet and income statement must be included.
Management accounts are not required by law but tend to be used internally to assist the business’ management and decision making
What would you typically include in a PLC account?
Chairman’s Statement
Independent auditors report
Income Statement (Profit and Loss Account)
Statement of financial position (balance sheet)
Corporate governance report
Remuneration report
What does IFRS stand for?
International Financial Reporting Standards
