Accounting Principles and Procedures Flashcards
What are the three financial statements that all companies must provide?
- Balance sheet
- Profit and loss accounts
- Cash flow
What are the different purposes of management and financial accounts?
Management accounts are for internal use only, where as financial accounts are required by law and are audited.
Who can prepare audited accounts?
Chartered or certified accountants.
What is the difference between a balance sheet and a profit and loss account?
A profit and loss account shows income and expenditure for a period of time, typically a financial year, whereas a balance sheet is a statement of the business’ financial position showing its assets and liabilities at a given date.
Where would you expect to find a company’s liabilities in their accounts
Balance Statement / Statement of financial position
Where would you expect to find details of a company’s expenditure over the accounting period?
Profit and loss / Income statement
What do your company accounts include?
- Chairman’s Statement
- Independent auditors report
- Income statement (profit and loss account)
- Statement of financial position (balance sheet)
- Corporate governance report
- Remuneration report
- Other statutory information
Why is it important to understand accounts?
It is important I understand accounting principles in order to understand my department’s performance, and producing forecasts of expected turnover for the upcoming quarter and year.
Also I am aware it is important for assessing covenant strength and for the profits method of valuation.
How would you assess a company’s covenant strength?
I could use the Dun and Bradstreet company check which analyses company accounts and carries out wider investigations into a company’s performance and reputation.
What are the main different types of fee structure you have used?
- Percentage fee based on value of asset bought or sold
- Fixed fee
- Hourly rate
How have CBRE performed this year?
CBRE UK half year revenue was $3.3 billion, an increase of 4%, with profits of $412.5 million
What is your company’s strategy?
The current strategy is to grow through acquisition of smaller businesses in order to diversify our service offering, promote technology and increase our presence in key geographical areas. Telford would be a recent example.
What are the underlying principles of accounting?
Transparency and honesty.
What are the applicable accounting standards in the UK?
International Financial Reporting Standards (2015)
UK GAAP has to accord with IFRS which has different ways of reporting the information
IFRS 16 requires the full cost of leases to be outlined
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.