Accounting Principles & Procedures Flashcards
What are the key financial statements that all companies must provide?
Profit and loss account, balance sheet and cash flow
What is the difference between management and financial accounts?
Management accounts are for the internal use of the management team. Financial accounts are the company accounts required by law
What is the difference between a statement of comprehensive income and a statement of financial position?
A statement of comprehensive income shows the income, expenditure and profit or loss of the company and the statement of financial position shows what a company owns (assets) at what it owes (liabilities) at a given point in time
What are the main types of ration analysis used to assess a company’s financial strength?
Liquidity – the ability of the company to pay its way (solvency). More companies fail due to cash flow than any other reason.
Investment/shareholders – Information to enable decisions to be made on the extent of the risk and the earning potential of a business investment.
Gearing – Information on the relationship between the exposure of the business to loans as opposed to share capital
Profitability – How effective the company is at generating profits given sales and/or its capital assets
Financial – The rate at which the company sells its stock and the efficiency with witch it uses its assets
Why do chartered surveyors in your pathway need to understand and be able to interpret company accounts?
Answers may vary but could be:
For your own business accounts
For assessing the covenant strength of potential tenants and landlord
For assessing the financial strength of contractors and those tendering contracts.
When have you used company accounts in your work or when do you think you may in the future?
Answers may vary but could be:
For your own business accounts
For assessing the covenant strength of potential tenants and landlord
For assessing the financial strength of contractors and those tendering contracts.
Why assess covenant strength?
The risk of tenant default affects security of income
It affects the capital value of the property. Effect on investment yields
How would you assess the covenant strength of a tenant?
An external credit rating business such as Dunn & Bradstreet.
Ask an accountant to review the last 3 years audited accounts
What is Dunn & Bradstreet?
Commercial database containing business records.
Run credit checks, monitor credit ratings and assess business risk
What is a profit and loss account?
Looks at the income and expenditure over a period of time (usually annually) to find net income. Also known as an income statement.
Show wether an entity has made or lost money during the period.
What is a balance sheet?
A statement of the financial position of a business at a given date, usually at the end of the financial year.
Shows the various categories of assets and how they have been financed.
Assets - Liabilities = net worth of the company
What measures of business performance are there?
Gross profit margin = gross profit/sales
Operating profit margin = Operating profit/sales
Earnings per share = Net earnings after tax/no of shares issued
What accounting regulations are there?
International - International Financial Reporting Standards (IFRS) - All European companies have to report under IFRS
UK - UK Generally Accepted Accounting Practice (GAAP) - UK companies which are not listed have the option to report under UK GAAP or IFRS
Also - International Valuation Standards - set up by RICS in conjunction with IFRS
What different types of company are there?
Ltd = limited company - Liability of members is limited to what they have invested Plc = Public liability company - Limited liability company that sells shares in the UK LLP = Limited liability partnership - Partnership in which all/some of the members have limited liability
