Accounting principles and procedures Flashcards
When receiving money from a client, how should the money be handled?
A formal client account should be setup to hold the money separate from other monies. No deductions should be made with out the clients written permission from the client. Sufficient records should be kept and you should be able to immediately account for any money held.
Client Monday Handling 1st Edition 2019
Name three accounting statements?
financial statement (legally required for public companies), management accounts (internal only) and cash flow.
What would you use a Cash Flow statement for in your business?
To forecast revenue, costs and profits assisting decision making.
How would you limit the risk of working with a client who may be financially unstable?
Credit checks, anti-money laundering procedures for high risk areas. Request payment or a deposit up front.
What would expect to see on a balance sheet?
The assets and liabilities owned by a company on a specific date.
How would you assess the covenant strength of a tenant, by looking at company accounts?
I would look at the profit and loss of the company in recent years to assess whether the business operation is profitable, looking out for large one off payments which may distort the total profit. I would look at the balance sheet to determine whether the company had sufficient assets to sell/borrow from in the event of making a loss. The term rent cover means the tenants net profit is a minimum of three times the annual rent.
What is IFRS 16 Leases?
A requirement for lessees to report leases as an asset in financial statements.
What is GAAP UK?
Generally Accepted Accounting Practice UK - The main purpose is to make reporting requirements proportionate to the size of the entity, and it also includes changes to disclosure, measurement, and recognition.
What is on a companies management accounts
Profit and loss, balance sheet, chairmans statement.
what is a financial statement?
Performance of a company which is required by law.
What is the basis of valuation under IFRA 13?
Fair value.
What is the difference between GAAP UK and IFRS?
All UK companies must prepare finacial accounts under UK GAAP or IFRS, most use GAAP because it is less complex and faster/cheaper.
Leases: IFRS - All lease must be classed as assets and liabilities if more than 12 months. GAAP - lease classified as finance lease or operating lease.
Intangibale assets: IFRS - life of intangible asset is indefinite. GAAP - no more than 10 years.
Goodwill: IFRS - Goodwill is not amortised but is subject to annual impairment review. GAAP - Goodwill is amortised on a systematic basis for expected life, no more than 10 years if not measured reliably.
Property: IFRS - Costs are always capitalised. For property investment, users can choose between depriciated cost or fair value. GAAP - users can decide to capitalise or expense borrowing costs related to acquiring or building property. Property investments always measured on fair value.
What types of companies are there?
Ltd, Plc, Sole Trader
What is a liability?
Financial obligations, also goods and services. E.g. loans, contracts, warranties.
What is an asset?
Something with economic value. E.g. property, stock, cash, investments.
