Accounting principles and procedures Flashcards
What is a profit and loss account
“A profit and loss provides the detail of what a company has lost/made in a given period
Performance over time
P&L= Income-Expenses”
What is a balance sheet
“A balance sheet displays company assets and liabilities at a point in time. Net worth
It is divided into 2 sides showing; RIGHT: Assets/ LEFT: liabilities and shareholder equities”
Do you know what is meant by a liquid asset
A liquid asset is an asset that can be converted into cash in a short amount of time
Can you give examples of forms of insolvency
“Administration - A company in administration still exists legally and can continue to trade. Administration is designed to rescue and restructure a company that has become insolvent
Liquidation/winding up - Liquidation/winding up means the dissolution of a company. The company will still exist legally until dissolution but will usually not continue to trade.
Company Voluntary arrangement - This is a voluntary arrangement where they make agreement with their debtors rather than declaring bankruptcy to prevent liquidation
Receivership - Appointment of a receiver is a remedy for creditors and other third parties to protect their interest in a company’s assets. A receiver can be appointed by court, or by a vesting document and their powers are usually limited in some way compared to other office holders such as liquidators and administrators”
What is Administration
Administration - A company in administration still exists legally and can continue to trade. Administration is designed to rescue and restructure a company that has become insolvent
What is liquidation
Liquidation/winding up - Liquidation/winding up means the dissolution of a company. The company will still exist legally until dissolution but will usually not continue to trade.
What is a CVA
Company Voluntary arrangement - This is a voluntary arrangement where they make agreement with their debtors rather than declaring bankruptcy to prevent liquidation
What is Receivership
Receivership - court-appointed tool that can assist creditors to recover funds in default and can help troubled companies avoid bankruptcy
What do the terms Capex & Opex relate to
“Capex - One-off expenditure that results in the acquisition, construction or enhancement of significant fixed assets Plant, Property & Equipment
Opex - Expenditure incurred in day-to-day operations, such as; wages, utilities, maintenance and repairs, rent, sales, general and administrative expenses, and so on”
What is a gearing ratio
An indicator of the financial risk associated with a company
Gearing is a measure of how much of a company’s operations are funded using debt versus the funding received from shareholders as equity
Can you name a gearing ratio
“Net Gearing = Net Debt / Equity
The ratio of net borrowings to shareholders’ funds
A gearing ratio higher than 50% is typically considered highly levered or geared.
A gearing ratio lower than 25% is typically considered low-risk by both investors and lenders.
A gearing ratio between 25% and 50% is typically considered optimal or normal for well-established companies.”
What is GAAP
Generally Accepted Accounting Principles
a common set of accounting rules and standards that dictate how financial statements are prepared
What is IFRS
International Finance Reporting Standards
Accounting rules for the financial statements of public companies that are intended to make them consistent, transparent, and easily comparable around the world
Have you done financial checks on a contractor/ what have you used
“Dun & Brad sheet
Experian
Provides financial health of company”
Your company is a Limited Liability partnership, what is a partnership
Exists when two or more partners go into business together, but the limited partners are only liable up to the amount of their investment
What does a cashflow tell you
The total amount of money being transferred into and out of a business, especially as affecting liquidity
Why is a cashflow important
“Measures money coming in and going out.
Summary of financial health.
Can be provided to understand spend and income across a given period”
How are accounts different internally and externally
Management accounts are for internal management and financial accounts are required by law
What are 3 financial documents that your company produces
“P&L - Is a financial statement that summarizes the revenues, costs, and expenses incurred during a specified period
Balance Sheet - Statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period
Cashflow - The movement of money in and out of a company”
What is a tangible asset
Physical; they include cash, inventory, vehicles, equipment, buildings and investments
What is a non tangible asses
An asset that lacks substance, patent, copyright, trademark
where can you find information on a company?
Company House
