Accounting Principles And Practices Flashcards
What is the difference between management accounts and audited accounts?
Management accounts of paid for internal purposes only and audit accounts prepared by a chartered accountant.
What is a balance sheet?
It shows the assets and liabilities of a company at a certain period of time, usually at the end of the financial year
What is a cash flow?
It shows the annual receipts and expenditure to include VAT
What is a profit and loss account?
It is a summary of a business, income and expenditure transactions prepared usually on an annual basis. It is also known as an income statement.
What is UKGAAP?
UK generally accepted accounting principles. Valuations for inclusion in financial statements are prepared in accordance with UKGAAP.
What is IFRS?
International financial reporting standards
When have you had to look at financial statements?
I’m not qualified to provide advice of financial statements however, I have looked at them to assess the covenant strength of prospective tenants were looking at assets, investment purposes, and also when assessing a tenant applicant’s covenant strength
What are the types of financial statements and where would you find them?
Dun and Bradstreet, FAME and accounts from companies house
What would you find on a Dunn and Bradstreet report?
Name of company, company number, a credit score rating, the profit before tax, net tangible assets, and turnover of the business. You would also find the address of the company and potentially some of the directors.
What are the score ratings based on?
The 5A is based on tangible net worth, and the 1 represents the risk of business failure
Why assess covenant strength?
The risk of tenant default affect security of income, as well as capital value of the property and has an affect on investment yields.
How much you assess the covenant strength of a tenant?
- References from a previous landlord
- A bank, accountant, and two trade references
- Asking accountant to check at least three years of audited accounts, or copy of the business plan for a new business
- An external credit rating for the business such as Dunn and Bradstreet
- Improve the covenant strength through a rent, deposit, bank guarantee or personal guarantee
What is Dun & Bradstreet?
Commercial database containing business records. It runs credit checks, monitors credit ratings and assesses business risk.
What is a profit and loss account?
It looks at income and expenditure over a period of time usually annually to find net income and can be also known as an income statement. It shows whether an entity has made a lost money, during a defined period
What is a balance sheet?
A snapshot of a companies condition, a statement of financial position of a business at a given date, usually at the end of the financial year. It shows various categories of assets and how they put financed.
Assets - liabilities = net worth of the company
