Accounting Principles & Procedures (L1M) Flashcards
What is the contents of a set of public limited company accounts?
- Chairman’s Statement & Director’s report
- Independent Auditor Report
- Corporate Governance Report
- Income Statement (profit and loss account)
- Statement of financial position (balance sheet)
- Corporate governance report
- Remuneration report
What GAAP?
UK GAAP (Generally Accepted Accounting Principles) • Body of accounting standards in UK • No universal GAAP standard – vary from location and industry
What is IFRS?
International Financial Reporting Standards
• Comparable internationally and broadly standardised
• Adopted by many public companies
What are the key things to look for in a company’s accounts?
- Balance sheets - statement of business’ financial position (assets (cash, property, debtors) and liabilities (borrowings, overdrafts, loans) on a given date)
- Profit and loss account - income statement. Income and expenditure including non-cash (depreciation)
- Cash flow- exact value of cash inflows and outflows
Name some accounting ratios
- Return on Capital Employed = operating profit / capital
- Current Ratio = current assets / current liabilities
- Profit Margin = Profit / Revenue
- Gearing Ratio - debt / equity
What are Company Accounts used for?
- Taxation (Companies Act 2006)
- Stock exchange listings
- Company investments
- Dividend distribution
- Borrowing (covenant strength)
- Going concern valuations
What is a balance sheet?
- A statement of financial position
- Displays a firms’ assets (cash, property, investments etc) and liabilities (borrowings, overdrafts, loans etc) on a given date (usually end of financial year)
- Important tool to assess a companys’ strengths and weaknesses
What is a profit and loss account?
A summary of the business’s income and expenditure transactions, prepared usually on an annual basis
It can be a consolidated statement summarising a number of trading entites
What is a cash flow statement?
Shows how the cash of a business was operated and spent over the last year, including VAT.
- operating activities
- investing activities
- financial activities
What is included in the cash flow statements for your department?
- departments income, including VAT
- outgoings i.e. staffing, office costs
Allows us to understand our profit, and profit margin. Prepared and produced on a quarterly basis.
How do management accounts differ from company accounts?
- Company accounts are a statutory requirement and offer a financial overview of a business. Prepared annually and are audited.
- Management accounts are prepared for internal use by a business and are not audited.
Why must an RICS member/Firm manage their finances appropriately?
Rules of Conduct for both Members and Firms requires ‘Solvency’.
What contents are within a PLC accounts report?
- 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.
Are you aware of any recent accountancy changes?
- Yes, IFRS 16 is the lease accounting standard with which all companies have to comply when using the international Financial Reporting Standards.
- The full cost of leases has to be accounted for on a balance sheet.
- Rent is a liability.
- Exemptions exist for leases of 12 months or shorter.
What is in a written report?
- Chairman’s comments
- CEO’s comments
- CFO’s comments
- Corporate responsibilities
- Risk management
- Director’s
- Corporate governance
- Remuneration
- Director’s responsibilities
- Auditors
What is in a statutory financial statement?
- Written reports
- Profit and loss account (income statement)
- Balance sheet (statement of financial position)
- Cashflow statement (statement of cashflow)
What are different types of company?
- PLC - shares offered to public. Limited liability
- LLP - Partners’ liability is limited. Not responsible for others’ negligence
- Limited Company - responsible for debt to extent of capital invested
- Sole Practitioner - one exclusive earner
If you were looking at accounts, what would you look at to establish a tenant’s strength?
• Revenues, costs, assets and liabilities
What would you include in a P&L account?
- An income statement
* Summaries the revenues generated and the costs incurred during a specific time period, usually a year
What are management accounts?
Prepared for internal use by a business and are not audited
What are audited accounts?
Prepared by a Chartered Accountant
What is a consolidated set of accounts?
Comprises a number of individual subsidiary accounts for a company within a single set of accounts
What are statutory accounts?
A report prepared annually by limited companies - to break down and showcase financial actions taken by the company in that year
- Produced to form a statement of the company’s overall spending
- Include profit & loss report and balance sheet
- Used internally and externally - main reason is to share annual financial information with shareholders and HMRC.
What are the key financial statements all companies must provide?
- Profit and loss account
- Balance sheet
- Cash flow
