Accounting Principles And Procedures - Summary Of Experience Flashcards
What does a set of company Accounts typically contain?
- Chairman’s Statement
- Independent Auditors Report
- Income Statement (Profit & Loss Account)
- Statement of Financial Position.
- Corporate Governance Report
- Remuneration Report
- Other Statutory Information
What is the difference between a balance sheet and profit and loss account?
- A balance sheet is a statement of the business’s financial position showing assets and liabilities.
- A profit & loss account is a summary of their income and expenditure account.
What is the difference between management and audited accounts?
- An audited account is prepared annually by limited companies to showcase financial actions taken by the company that year.
- Management accounts are internal, may be in more detail to help the company identify where it is struggling in certain financial areas.
Who is qualified to advise on financial matters?
A chartered accountant.
What is included in a profit and loss statement?
Income - expenses = Net Income.
Operating expenses include - cost of sales, marketing, tech
Capital expenditure: large transactions.
What does the RICS say about Service Charges?
In accordance with RICS Professional Standard Service Charges in Commercial Property (2018) (Effective April 2019) the objectives are:
- To improve standards and promote best practice.
- Ensure timely issues of budgets and year-end certificates.
- Reduce the cause of disputes.
- Provide guidance on negotiations.
How are invoices approved in your firm?
When work is instructed by the property managers, correct invoice billing address are sent prior to works, invoices are sent to in house accounts team and are then sent to property managers to approve.
Once approved, they are sent back to accounts to pay.
What is the difference between service charge certification and audited accounts?
An audit is an independent external review process that adds to the credibility of an entity’s disclosures.
A year end certification is carried out by a third party accounted that certifies the information provided to the occupiers at the end of the service charge year.
What are the Mandatory Requirements under the RICS Prof Standard Service Charges in Commercial Property January 2022
- All expenditure that a landlord or manager seek to recover must be in accordance with the terms of the lease.
- Landlord and managers must seek to recover no more than 100% of the proper and actual costs.
- Landlords and managers must ensure that service charge budgets are issued annually to all tenants.
- Landlords and managers must ensure that an approved set of service charge accounts showing accurate record of expenditure of the SC is provided annually to all tenants.
- Ensure that service charge apportionment matrix is provided annually to all tenants.
- Service charge monies must be held in one or more discrete bank accounts.
- Interest earned on service charge accounts must be credited to the service charge account after appropriate deductions have been made.
- Where acting on behalf of the tenant, practitioners must advise their client that if a dispute exists, any service charge payments withheld by the tenant should reflect only the actual sum in dispute.
Can you name me a recent bit of case law in relation to service charges?
Sara & Hossein Asset Holdings Ltd v Blacks Outdoor Retail Ltd
Blacks was responsible for paying a “fair and reasonable proportion” of the total service cost.
Blacks refused to pay the full amount, saying that the charge was excessive and included unnecessary items and expenses that’s were not properly due under the terms of the lease.
“Pay Now, Argue Later Regime”
How are Service Charges reconciled?
Income demanded against all service charge expenditure for a given service charge accounting period. This enables the calculation of any balancing charges and credits due from the tenants.
Give me an example of three financial statements?
Income Statement
Balance Sheet
Cash Flow Statement
What do each of the THREE financial statements show?
Income Statement - shows the profitability of a company under accrual accounting rules.
Balance Sheet - shows a company’s assets, liabilities and shareholders equity at a particular point in time.
Cash Flow Statement - shows cash movement from operating, investing and financial activities.
These three core statements are intricately linked to each other.
What are some key features of an income statement?
Shows the revenues and expenses of a business.
Expressed over a period of time (i.e. 1 year or 1 quarter)
Uses accounting principles.
Used to assess profitability.
What is an Income Statement?
Often the first place and investor or analyst will look to. The income statement shows the performance of the business throughout each period, displaying sales revenue at the very top. The statement then deducts the cost of good sold to find the gross profit.
From there, gross profit is impacted by other operating expenses and income, depending on the nature of the business, to reach net income at the bottom, ‘bottom line’ for the business.
What is a Balance Sheet?
The balance sheet displays the company’s asset, liabilities and shareholders equity at a point in time.
The two sides of the balance sheet must balance (assets must equal liabilities plus equity.
The balance sheet then displays the ending balance in each major account from period to period. Net income from the income statement flows into the balance sheet as a change in retained earning.
What are the key features of a balance sheet?
Shows the financial position of a business.
Has three sections; assets, liabilities and shareholders equity.
Assets = Liabilities + Shareholders Equity
Explain to me what a cash flow statement is?
A cash flow statement takes net income and adjusts it for any non-cash expenses.
Then cash inflows and outflows are calculated using changes in the balance sheet.
The cash flow statement displays the change in cash per period, as well as the beginning and ending balance of cash.
What are the key features of a cash flow statement?
Shows the increases and decreases in cash
Expressed over a period of time (i.e. 1 year, 1 quarter)
Undoes accrual accounting principles to show pure cash movements
Has three sections; cash from operations, cash used in investing and cash from financing.
Shows the net change in the cash balance from the start to the end of the period.
What are the differences between financial accounts and management accounts?
Financial Accounting - involves recording, summarising and reporting transactions resulting from business operations over a period of time.
Management Accounting - involves identifying, measuring, analysing, interpreting and communicating financial information to an organisations managers for pursuit of that organisations goals.
Financial accounts tend to be concise and generalised.
Management accounts tend to be highly detailed, technical and specific.
What are financial ratios?
Financial rations are created with the use of numerical values taken from financial statements to gain meaningful information about a company.
What is IFRS?
International Financial Reporting Standards which are published by the International Accounting Standards Board (IASB)
What is IFRS 16?
IFRS 16 is part of the wider IFRS and is known as the new leases standard.
When does IFRS 16 apply from and who does it apply to?
1 January 2019
All companies who rent or lease assets for business purposes.
What are the objectives of IFRS 16?
To report accurate information which reflects lease transactions
To allow accurate analysis of cash flows (e.g. amount, timing and uncertainty) relating to leases.
What are the key changes of IFRS 16?
Leases must be accounted for on the balance sheet.
New definitions of financial metrics e.g. gearing ratio
What companies must have a financial audit?
Public companies
Subsidiary companies
An authorised insurance company
Companies carrying out insurance market activity
Companies involved in banking.
