Accounting Principles and Procedures Flashcards
Why is knowledge of accounting principles important for chartered
surveyors?
- To be able understand the financial health of a project to protect the Client’s Interests.
- To able to understand the financial health of your company or organisation so that you can manage it effectively.
- To understand your own financial health
What is the difference between Management Accounts and Company
Accounts?
Management accounting provides information to people within an organisation or for a project - Confidential.
Company accounts are a legal requirement in most countries and provide information for people outside the company – Public.
What is a profit and loss statement?
A statement that shows income and expenditure for a project or company to show what profit or loss is being made.
What is a cash flow statement?
Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the Business or project.
As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company or project, particularly.
What is a balance sheet?
A statement of the assets, liabilities, and capital of a business or other organisation at a particular point in time, detailing the balance of income and expenditure over the preceding period.
This gives an idea as to what the company owns and owes.
They may also include shareholders investments as well.
What is revenue expenditure?
Expenditure incurred during normal business operation by the company, the benefit of which will be received in the same period, e.g. rent expenses, utility expenses, salary expenses, insurance expenses etc.
What is capital expenditure?
Money spent by a business or organisation on acquiring or maintaining fixed assets, such as land, buildings, and equipment.
What are the key financial statements that all companies must provide?
- Profit and loss account
- Balance sheet
- Detailed notes to accounts. – accountants report and directors report
What is the difference between a statement of comprehensive income and a statement of financial position?
A statement of comprehensive income shows the income, expenditure and profit or loss of the company.
A statement of financial position shows what a company owns (assets) and what it owes (liabilities) at a given point in time.
What are the main types of ratio analysis used to assess a company’s financial strength?
Liquidity – the ability of the company to pay its way (solvency). More companies fail due to cash flow than any other reason.
Investment/shareholders – information to enable decisions to be made on the extent of the risk and the earning potential of a business investment.
Gearing – information on the relationship between the exposure of the business to loans as opposed to share capital.
Profitability – how effective the company is at generating profits given sales and/or its capital assets.
Financial – the rate at which the company sells its stock and the efficiency with which it uses its assets.
What do you look for when examining accounts?
- What assets and liabilities the company has.
- How profitable they are.
- The level of revenue coming in.
