Accounting Principles and proceedures Flashcards
What is a cashflow statement?
– is a financial statement that shows business inflows and outflows over a period of time.
Can you go into a little more detail regarding cashflows?
These are reconciled back to the movement in cash in the balance sheet. Business need to make a cashflow statement if they are using Accrual method which says we should record revenue as its earnerd and record expenses as they are incurred when the substance of the transaction takes place.
What is a profit and loss statement? (Income statement)
Is a summary of the business’s income and expenditure transactions, prepared usually on an annual basis.
made up of three things, revenue, expenses and profit.
What is a balance sheet? (statement of financial position)
Is a statement of the business’s financial position showing its assets and liabilities at a given date, usually at the end of a financial year.
What can assets include?
Assets can include cash, property, debtors, and other investments held
Liabilities can include borrowings, overdrafts, loans and creditors
What are audited accounts?
How do you assess covenant strength?
Profits test
Experian rating
Look at the accounts over last three years and see if there is growth in the turnover
Also shareholder funds (suggests cash reserves)
If you are asked to advice on the covenant strength would you?
I would state that I am not a chartered accountant so I am not qualified to provide advice on accounts however I would refer to the profitability and turnover of the company and state that the market perceived that this is a good covenant.
What is turnover?
The amount of money taken in by a business at a particular period.
What is profit?
Is the money you have left after paying business expenses
What is the net worth?
the measure of a company’s or individual’s actual worth, accounting for assets as well as debts
What are shareholders funds?
the amount of equity in a company that belongs to shareholders
