Accounting Principles and Procedures Flashcards
What are the basic concepts in finance?
Cashflow Statement of financial position Income statement Asset and Liabilities Invoicing Revenue forecasting Profit Turnover
How does covenant strength impact MV?
key area of the risk profile of the asset
if a asset has less risk attached to = more valuable as someone would be willing to pay more for the asset.
Security of income
How do you analyse covenant strength?
Assess the financial strength through:
Credit Score
Accounts - last 3 years of account and see profit/loss.
Why does covenant strength matter for loan security valuations?
Even more implication for LS vals
Demonstrates the risk in an investment
If there is a weak covenant then might not receive full expected income.
If income falls may not have ability to pay interest on the raised finance.
What is a statement of financial position?
Is a statement of a business’s financial position showing assets and liabilities at a point in time.
What’s the difference between an asset and liability?
Assets are the items a company owns eg property
Liability is what the company owes someone else eg interest payments.
What is an income statement? (Profit or Loss Account)
shows the profit or loss made by a company over a set period of time.
What is a cashflow statement?
shows the amount of amount of money leaving or entering a business during a specified period. Does not show predicted future.
What is the difference between audited and non audited accounts? examples?
Audited accounts have been checked by a third party eg an accountant.
Unaudited - accounts prepared by management to be used internally.
What’s the purpose of a balance sheet?
reveals the financial position of a company at a point in time - assess business strength
what might be included in a cashflow?
certain outgoings like a lease
incoming like revenue.
What’s the difference between statutory and management accounts?
Statutory - prepared annually by limited companies - to show financial actions taken in a year
Management - just accounts used by executives internally to make decisions. No format required.
