Accounting Principles & Procedures Flashcards
What are the three primary types of financial accounts?
Balance Sheet
Profit and Loss Account (Income Statement)
Cash flow statement
What does a balance sheet (statement of financial position) show?
POSITION
Statement of the business’s financial position showing its assets and liabilities at a given date, usually at the end of a financial year
- Assets: cash, property, debtors and other investments
- Liabilities: borrowings, overdrafts, loans and creditors
What does a profit and loss account (income statement) show?
PERFORMANCE
Summary of the business’s income and expenditure transactions, prepared usually on an annual basis
Recorded on an accruals basis i.e. revenues are reported when they’re earned
What does a cash flow statement show?
Shows actual receipts and expenditure. It is not included in the annual accounts but is prepared for management purposes.
Who are audited accounts prepared by?
Chartered or RICS certified accountants
What is IFRS
International Financial Reporting Standards
What does IFRS 16 require companies to do?
Full cost of the lease has to be accounted for on the balance sheet.
Occupiers obligation to pay rent will have to be recognised as a liability
What does a public limited company set of accounts include?
Chairman’s statement
Independent auditor’s report
Income statement (profit and loss account)
Statement of financial position (balance sheet)
Corporate governance report
Remuneration report
Other statutory information
What is covenant strength?
Ability of a tenant to meet the covenants of the lease.
Includes:
* rents,
* service charge,
* repairing and insuring obligations and;
* statutory obligations
What is a D&B rating?
The D&B Rating is an indicator that assesses the credit worthiness of a company based on the financial strength of the business, payment behaviour, age of the company, company size and other important factors
What are the two components of a D&B rating?
Financial Strength (e.g. 5A) rating is based on the tangible net worth as computed by D&B from financial statements supplied by the company. The rating indicates the credit capacity
Risk Indicator highlights the chance of business failure, ranging from 1 – 4 with one reflecting low/minimum risk and four reflecting high risk
What do the two scores produced by D&B show?
Delinquency Score shows an organisation’s relative rank of delinquency against other organisations in the country by percentiles (100 = lowest risk, 1 = highest risk)
Payment Score (Paydex) shows an organisation’s payment timeliness based on their trade history (<80 = slow payments, 80 = prompt payments, >80 = payment before due)”
What is the Financial Strength score based on?
Outstanding charges or slow payment experiences reported.
Tangible net worth of the parent company.
Pre-tax profit over total assets ratio.
Values, ratios and trends from the Balance Sheet.
