Accounting Principles and Procedures

Question 1

What is the difference between balance sheets and income statements?

Answer 1

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.

Question 2

How would a covenant strength determine a yield?

Answer 2

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.

Question 3

What are management accounts?

Answer 3

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.

Question 4

What does a set of public limited company accounts include?

Answer 4

-Chairman’s statement
-Independent auditor’s report
-Income statement (profit and loss account)
-Statement of financial position (balance sheet)
-Corporate governance report
-Remuneration report
-Other statutory information

Question 5

What does the cash flow statement show?

Answer 5

Shows actual receipts and expenditure. It is not included in the annual accounts but is prepared for management purposes

Question 6

What are the three primary types of financial accounts?

Answer 6

-Balance Sheet
-Profit and Loss Account
-Cash flow statement