Accounting Principles and Procedures (Level 2) - SOE Specific

Question 1

What principles of RICS PS: Service Charges in Commercial Property (1st Edition, 2018) are relevant to Accounting?

Answer 1

• Budgets issued 1 month before, Recs issued 4 months after
• All expenditure must be disclosed to tenant
• Shouldn’t seek to recover any more than 100% of expenditure

Question 2

What is a balance sheet?

Answer 2

The balance sheet shows a company’s assets (what it owns) and it’s liabilities (so what it owes) at a given point in time.

Shows whether a company is solvent

How likely it is that the company will still be in business in a year  

3 parts: Assets, Liabilities and Equity (AKA Net Worth, Net Asset Value or Capital)

Question 3

What is a profit and loss account? (also known as INCOME STATEMENT, STATEMENT OF COMPREHENSIVE INCOME)

Answer 3

Summary of business income and expenditure prepared on annual basis

Note: best for determining covenant strength as shows thorough breakdown of turnover, expenses and gross profit

Question 4

What are the key financial statements that companies provide?

Answer 4

Profit and loss accounts

Balance sheets

Cash flow statements

Question 5

What is the difference between management and company/financial accounts?

Answer 5

Management accounts are for the internal use of the management team (prepared monthly/quarterly for the business owner) - more informal

Company accounts are accounts required by UK law, submitted within 9 months of YE

Question 6

What governs the format of company accounts? 

Answer 6

The Companies Act 2006 

Question 7

What is included in company accounts, as laid out in the Companies Act 2006? 

Answer 7

Cover page 

Information/contents page

Directors report 

Accountants report  

Statutory Profit and loss account 

Balance sheet 

Notes to the accounts

Detailed Profit and loss account 

Question 8

What is GAAP?

Answer 8

Generally Accepted Accounting Principles

Question 9

What is the benefit/purpose of GAAP? 

Answer 9

Common set of accepted accounting principles/standards/procedures to use when compiling financial statements

To improve the clarity of the communication of financial information; most common standard is FRS 102   

Question 10

What are the 10 principles of GAAP?

Answer 10

Regularity  

Consistency 

Sincerity 

Permanence  of Methods

Non-compensation 

Prudence 

Continuity 

Periodicity 

Materiality 

Utmost good faith