Accounting Principles - Summary of Experience Flashcards
What is a balance sheet?
also called the statement of financial position
- Tells us how much a company is worth, outlining their assets and liabilities and shareholder quity
What is a cash flow statement?
Also called the statement of cash flows
- Provides data regarding all cash flows recceived from ongoing opertions and investments
What is a cash flow statement?
Also called the statement of cash flows
- Provides data regarding all cash flows recceived from ongoing opertions and investments
What is a profit and loss account?
Also known as the income statement
- Summarises the revenues, costs and expenses incurred during a specific period of time
How have you advised on tenants covenant strength?
In an application to assign at Farringdon Point
- I reviewed their balance sheet and income statement
- I also instructed Cliant Account financial review and credit report
- Proposed tenant was weaker covenant stregth so i advised AGA and additional 6-month Rent Deposit
What is IFRS and what did it replace?
International Financial Reporting Standards -> mandatory accounting standard for group companies
-> Replaced IAS (Internationaly Accounting Standards) in 2001
What is IFRS 16?
International accounting model that specifies how leases are recognised in financial statements
- Requires leases to be recorded as assets and liabilities on the balance sheet
What is the objective of IFRS 16?
Assess the effect that leases have on financial position, financial performance and cash flows of an entity
WHat is the result of IFRS 16?
- increase in assets, liabilities and net debt
- affects key financial ratios, impacting attractiveness and ability to raise finance
- may result in shorter leases being taken to reduce net debt
What is UK GAAP?
UK Generally Accepted Accounting Practice
- Body of regulation establishing how company accounts must be prepard in the UK
- FRS 102 is the principle standard used in UK GAAP
What is the difference between UK GAAP and IFRS?
The UK GAAP standard, FRS 102, is based on IFRS but for SMEs (small and medium sized enterprises)
- A simplfied IFRS standard which is more cost-effective
How do you know which accounting standard to use ?
Set out in FRS 100 - Application of FInancial Reporting Requirements
What do you understand about GAAP and what is its purpose?
Standards that encompass the details, complexities and legalities of business accounting
- Improve the clarity of communication of financial information
What are the principles of GAAP?
Regularity
Consistency
Sincerity
Permanence
Non-compensation
Prudence
Continuity
Periodicity
Materiality
Good faith
What is IFRS 13?
Defines fair value, sets out framework for measuring fair value and requires disclosures about fair value measurements
What is the basis of value under IFRS 13?
Fair value
what changed in relation to IFRS 16?
Removed classification of leases as either opoerating or finance leases
When did IFRS 16 changes come into effect?
1st january 2019
How do you asses tenants covenant strength?
- Review Companies House documents
- Request additional financial info
- Instruct credit report
- Instruct financial review
- Profits method (net profit =3x annual rent - rule of thumb roughly)
What are the main credit rating agencies
- Dunn and Bradstreet (D&B)
- creditsafe
- Standard and Poor (S&P)
- Moodys
- Fitch ratings
Why is a financial review important
As i am not competant enough to provide a strong recommendation alone
-> financial review therefore assist with determining covenant strength and enables me to make strong recommendations
What are the 3 types of financial statements you might come across
- balance sheet (statement of financial position)
- Income statement (profit and loss statement)
- Cash flow statement (statement of cash flow)
What is the difference between management accounts and financial accounts?
management accounts are prepared for internal use
- Financial accounts are required by law / legislation and must follow pre-determined format
What are assets on the balance sheet?
Something a company owns that has economic alue
i.e cash or real estate
What are liabilities on the balance sheet?
What a company owes to other parties
i.e Salaries/ wages
Taxes
Interest
Payments owed to suppliers
What key information can be concluded from a balance sheet?
Their financial position - whether they are solvent
- How likely it is that a company will still be in business in a year
What are th 3 parts of a balance sheet?
Assets
liabilities
Owners equity
What is the difference between a profit and loss statement and a balance sheet?
- Balance sheet reports assets, liabilities and shareholder equity
- Profit & Loss statement summarises a companys revenues, costs and expenses
Why is good financial record keeping important to you?
- Makes budgetting easier
- Important for tax purposes
- Prevents fraud and theft
- Helps to efficiently manage cash flow
- Makes management easier
Why is the cash flow statement believed to be the most intuitive of all financial statement?
Follows the cash made by a business in 3 ways:
- Operations
- Investment
- Financing
= Sum of these = net cash flow
What is directors renumeration in a profit and loss account?
Refers to how directors of a company are compensated for their services, usually fees, salary, use of company property and benefits
Can you tell me about a common financial measure?
- Gross profit margin / net profit margin
- Working capital (current assets minus current liabilities)
- Debt-toequit ratio (total debt / total equity)
What is a completion statement ?
Statement that outlines the financial transactions incoming and outgoing
What is a pre-list?
Schedule outlining charges that are to be raised
How do you reconcile a SC account?
checking all invoices are correct and allocated/apportioned to the correct schedules / expenditure provisions
- Make adjustments where necessary
- Within 4 months of accounting end period
What guidance is there on SC?
RICS Service Charge in Commercial Property 2018
When does a reconciliation and budget need to be completed?
Budget - Minimum 1 month, issed with apportionment matrix and explanatory comments
Reconciliation - within 4 months, issued with apportionment matrix and explanatory comments
What is the Companies Act 2006?
Act of Parliament of the UK, forms the primary source of UK company law
- aims to modernise and simplify corporate law
How do you report to your clients on rent and SC collection?
- Weekly meetings following quarter days
- Run reports
- Keep them updated by email throughout the week
How do you ensure that demands are correct?
Check and approve pre-list by looking at Horizon or lease and SC budgets
How do you verify completion statements?
i don’t, they need to be verified by the Client Accountant
When are completion statements needed?
Various situations:
- Property sale
- Lease surrender
- Lease renewal
- Rent review (back dated)
What are your rent collection KPIs?
90% collection on day 7
95% collection on day 14
98% collection on day 28
