Accounting principles Flashcards
What is a balance sheet?
Shows a company’s financial status - what is owned and owed.
[Bank statement]
What is a cash flow statement?
Shows the money going in and out of a business.
It’s been brought to your attention that funds are missing from the client monies account. Please tell us the process you would follow.
Reconciliation issue - Go through my records to check transaction amounts, dates, recipient.
Where does equity sit on a balance sheet?
- After liabilities (what company owes).
- Shows value after liabilities are subtracted from assets.
[ALE: assets - liabilities = equity]
[Equity: net worth]
What is the impact of International Financial Reporting Standards (IFRS) on your role?
- If I was CA on a project I’d undertake a valuation so the contractor knew how much revenue they made which would assist in their accurate financial reporting.
[Accurate progress reporting helps revenue recognition.]
[- Financial reporting framework.
- Advises on what are CapEx versus operating costs.
- PLCs must follow this when preparing company accounts.]
What is a sinking fund?
Money collected from property owners to pay for future repairs and maintenance.
[Usually part of the service charge]
Tell me what insolvency is.
How does it occur?
- When a business [or individual] can’t pay their debts.
- Not paying bill when they’re due, not paying taxes.
How can cash flow be used?
- Interim Payments to contractors.
- Ensures contractors don’t have cash flow issues.
What is the difference between a profit and loss statement and a balanace sheet?
- P&L: profit over time.
- Balance sheet: financial status at a point in time.
- P&L: asesses performance [shows net profit or loss made].
- Used to calculate a firm’s profit margin.
- Balance sheet: shows a firm’s financial position.
[ALE: assets - liabilities = equity]
What are examples of company overheads?
- Office rent.
- Computers, printers etc.
[Costs associated with running the business which aren’t directly tied to a project]
What is the difference between budgeting and financial forecasting?
- Budgeting: Plan for how money will be spent.
- Forecast: What you think will happen in the future.
What is the role of an auditor?
- To review a company’s financial records.
- Ensure accounts are accurate.
- Ensure they’re prepared according to accounting standards i.e. IFRS.
Can you tell me the difference between financial and management accounts?
- Financial account: Shows financial position of a business.
- Management account: Used internally by managers to make decisions.
