Accounting principles & Practices Flashcards
What is liquidity?
The amount of cash which a business has or has access to
What is a non-current asset?
Property, equipment, investments
Intended to be kept for more than one year
What is a current asset?
Debtors and cash
Can be turned into liquid funds speedily)
Intended to be used in the next 12 months
What is working capitol?
The difference between current assets and current liabilities
Used to finance the day to day trading like wages, bills, raw materials
Known as net currents assets
Why might a company have a decreasing working capitol?
Poor management
A short term problem
Successfully growing the business
What is solvency?
A measure of a company’s assets compared to liabilities
If liabilities exceed assets then insolvent
Who requires a solvency margin?
The PRA
What is regulatory capitol?
The sum of equity and long term debt
What is an asset?
A resource that will provide benefit
A tangible asset?
Physical or real asset like cash, buildings, machinery or investments
An intangible asset?
Not physical like a trademark, a copyright, or goodwill.
What is a liability?
A present obligation arising from past events (or an amount owed)
What is equity?
Assets - liabilities
Who is required by law to produce financial statements?
All listed companies
What is the balance sheet?
A statement of the net wealth of a business
At a particular time
What is a current liability?
Money that has to be paid in less than 12 months like bank overdraft or trade creditors
What is a non current liability?
Does not have to be paid within 12 months like bank loans, mortgages and bond issues
Examples of long term sources of finance?
Share capitol or reserves (profits from the business held back and reinvested into the business)
What is assets employed?
Non current assets + working capitol (which is net current assets)
What is the income statement?
Shows the amount of profit or loss a company made in the last financial year
What is gross profit?
Turnover - cost of sales
Costs should be matched against revenues generated already so unsold stock is not included as a cost
What is revenue?
Total value of all sales (ex vat) invoices during the year
Can be called turnover
What is the cost of sales?
Cost of stock bought during the year that has been subsequently sold
Doesn’t include money spent on stock that is yet to be sold
GWP?
Premium before reinsurance is extracted
GWP is gross of commission but net of IPT
Net written premium?
GWP - reinsurance
