Accounting Principles Flashcards
What is a Profit and Loss Account?
It is taken over a period of time and shows the profitability of a company, taking into account:
- Revenue
- Expenses
- Gains
- Losses
What is a Balance Sheet?
It looks at what a company owns/owes which indicates its financial health. Taken at a snapshot in time, it includes:
- Assets
- Liabilities
- Shareholder equity
What is financial accounting?
It includes P&L accounts and Balance sheets. It keeps shareholders informed about the financial status of a company
What is managerial accounting?
This is the internal information shared within a firm to inform the direction which a firm wishes to progress
What is the purpose of internal auditing?
Ensures staff are undertaking tasks correctly, ensuring efficiency, and that a firm is complying with its regulatory obligations
What is the purpose of external auditing?
Ensuring a firm is complying with its regulatory obligations
What is a financial cash flow?
Shows gains and losses for financing the company including:
- Debts
- Equity
- Dividend payments
What is investment cash flow?
Shows gains and losses from non-business activities including:
- Purchase of investments
- Research and development
- Speculative assets
What is operational cash flow?
Money flows involved in the running of the business
What are some financial ratios?
- Quick ratio/Acid test ratio
- Debt to equity ratio
- Working capital ratio
What is the Quick ratio/Acid test ratio?
(Current Assets – Inventory) / Current Liabilities
This shows you how easily a business’s short-term debts will be covered by its existing liquid assets, or cash. If the quick ratio is greater than one, the business is in a good financial position.
What is the debt to equity ratio?
Total Liabilities / Shareholders Equity
This ratio measures the degree to which the business’s operations are funded by debt. When this ratio is greater than one, the company holds more debt. If the value is below one, it indicates that the company holds less debt.
What is the working capital ratio?
Current Assets / Current Liabilities
The higher the working capital ratio, the easier it will be for a business to pay off debts using its current assets.
What is an escrow account?
Where money is held by a third party before being transferred once an action has been fulfilled
