Accounting Principles and Procedures Flashcards
What is the difference between balance sheets and income statements?
Balance sheets show what a company owns at a specific point in time, including assets and liabilities. They help assess if a company has enough assets to cover its financial obligations.
Income statements report a company’s performance over a specific period, showing income and expenditure transactions to assess profitability.
How would a covenant strength determine a yield?
A stronger covenant strength would lead to a lower yield due to a greater security of the income and less chance of the tenant defaulting on their rental obligations. It would be more attractive to potential investors and therefore yield would be lower.
What are management accounts?
Management accounts are prepared for internal use by a business and are not audited. They are financial reports (monthly/quarterly) which include balance sheets and profit loss statement. They inform a manager/owner’s decision making and business planning and can be tailored to the businesses’ needs.
Tell me more about accounting principles?
Balance Sheet: A statement of a business’s financial position showing its assets and liabilities at a given date, usually at the end of the financial year. Assets can include cash, property, debtors, and other investments held. Liabilities can include borrowings, overdrafts, loans, and creditors.
Profit and Loss (P&L) account: Also known as an income statement, it is a summary of a business’s income and expenditure transactions, usually prepared on an annual basis. Management accounts are for internal use by a business and are not audited. Audited accounts are prepared by a Chartered or Certified Accountant. A consolidated set of accounts comprises a number of individual subsidiary accounts for a company within a single set of accounts. The cash flow statement shows all actual receipts and expenditures, including VAT.
