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M92 > Chapter 6 > Flashcards

Chapter 6 Flashcards

1
Q

What is book keeping

A

The actual record making process of accounting

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2
Q

Who would be interested in a company’s financial information

A

Stakeholders

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3
Q

Andy: What do quoted limited companies have to do on the companies act 2006 in respect of accounting

A

Provide an annual accounts return which must be audited by an independent auditor. Audited accounts or a true selection of a company state to the outside world

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4
Q

What 4 things are included in the account of quoted companies

A

Narrative report from the chairman and CEO executive
A strategic report
Financial accounts for the period
Other legal requirements such as a details of a directors remuneration

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5
Q

The companies act 2006 include regulations on accounting such as The: 

A
  1. Requirement to keep adequate accounting records
  2. Directors duty to prepare account for a company
  3. Directors duty to prepare accounts for a group of companies and the consistency of financial reporting within a group
  4. Requirement to prepare accounts that show a true and fair view
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6
Q

Account include the company’s financial statements which comprise of what

A

The income statement
The balance sheet
Cash flow statements

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7
Q

What is an income statement

A

It shows the profit and loss

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8
Q

What is a balance sheet

A

A statement of financial position of the business at a point in time

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9
Q

What is a cash flow statement

A

Show the sources and uses of cash and a useful indicator of a company is liquidity

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10
Q

What is the substance over form concept

A

The financial statement to show the economic substance of transactions rather than the legal form

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11
Q

Andy: the annual accounts will include what financial statement showing:

A

Income statement
Balance sheet
Cash flow statements
Narrative reports of a chief executive and directors
The companies plan for the future
Other legal requirements such as a directors remuneration
(Optional) Chairmans report

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12
Q

Andy: Who uses a company’s financial information

A

Stakeholders. Quoted Companies have shares available to the public

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13
Q

Andy: What is an income statement

A

Shows the results of trading and is done on a accrual basis- it counts the money in if you’ve done the work and the money is an actually in

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14
Q

Andy: What basis or cash flow statement done

A

An actual basis

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15
Q

Andy: What are balance sheets

A

Balance sheet or a snapshot of the account at a particular moment in time to show what the company owns what it owes and what it is worth

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16
Q

Andy: what should income statement, balance Street and cash flow statement show

A

They must show a true and fair view

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17
Q

Which stakeholders will Have an interest in organisations financial information

A 
Owners
Directors and managers
Employees
The public
Tax authorities
Financial analysts
Creditors and lenders
Competitors
Brokers
Customers
PRA and FCA
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18
Q

What is profitability

A

It is a companies ability to make a profit. Is there is a positive amount of money left over we’re all costs and expenses or subtracted from the organisations income than organisation has made a profit

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19
Q

Who want to know if a company has been profitable

A

Managers
Employees
Existing and potential shareholders

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20
Q

In profitability if your mouth left over when all costs and expenses are subtracted from organisations income is zero what does that mean

A

They have broken even

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21
Q

What is the cash position (liquidity)

A

The amount of cash which a business has, or has access to, is known as its liquidity

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22
Q

 what is Working capital

A

The difference between current assets and current liabilities

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23
Q

What is solvency

A

Solvency is a measure of the excess of an organisations assets compared with liabilities. If a company liabilities exceed its assets it’s so said to be technically insolvent And will be required to cease trading

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24
Q

andy: What is income

A

All amounts earned.

Sales, revenue, turnover

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25
Q

Andy: What is expenditure

A

All the money out incurred to pay for goods or services

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26
Q

Andy: what is profit

A

Money in minus money out

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27
Q

andy: what is assets

A

Things that are owned

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28
Q

Andy: what are liabilities

A

Owed

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29
Q

Andy: what are shareholders equity

A

Stake shareholders have in the company

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30
Q

Andy: what is capital (shareholders equity)

A

Assets minus liabilities

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31
Q

Andy: what is cash

A

Anything in the bank accounts

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32
Q

Andy; What is a tangible asset

A

Something is physical such as cash, land, buildings, machinery or investments

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33
Q

Andy: What is an intangible asset

A

Something that is not physical such as a trademark, a copyright, or Goodwill

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34
Q

Andy: What is a creditor

A

You owe them money. Until it is paid off in remains a liability on the companies balance sheet

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35
Q

Andy: what is a debtor

A

An organisation or person who owes a debt to a company. Can be considered as part of a company’s current assets and is shown as such in the balance sheet

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36
Q

Andy: what is depreciation

A

It reduces the value of an asset (can be things such as buildings and machinery) 

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37
Q

Andy: what is liquidity

A

The ability to turn assets into cash

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38
Q

Andy: what is solvency

A

Assets greater than liabilities

39
Q

Andy: what is a regulatory capital

A

Governed under solvency 2- money held for a regulator

40
Q

Andy, what is the formula a straight line depreciation

A

Cost of asset minus residual value (if any) divided by the life of the asset

Example:
A company buys a machine for 6 K and the perceived shelflife of the machine is four years after which it will be 1200 residue value:

£6k - 1.2k / 4 years = 1.2k a year

IMPORTANT: The 1200 goes in a profit and loss not the 6000 remember this!

41
Q

Andy - what is the accounting equation? (Formula) if you have equity left over

A

Equity = assets - liabilities

42
Q

What does assets equal

A

Equity + liability

43
Q

Look at example page 6/13 for accounting equation

44
Q

What is a balance sheet

A

Is a statement of the net wealth of a business at a particular time

45
Q

What is the difference between a businesses total assets and its total liabilities are called

A

Its shareholders equity and it belongs to the owner of the business

46
Q

Andy - what is non-current assets

A

Assets intended to be kept for more than 12 months

47
Q

Andy - What’s our current assets

A

Assets intended to be used within 12 months

48
Q

Andy - What are tangible assets

A

Could be current or non-current. Relatively easy to measure

49
Q

Andy - What are intangible assets

A

These are non-current assets. Not easy to measure

50
Q

Andy - What are current liabilities

A

To be repaid within 12 months

51
Q

Andy - What are non-current liabilities

A

To be repaid for a period of longer than 12 months

52
Q

Andy: what are current assets

A

Assets intended to be used within 12 months

53
Q

Andy: what are current liabilities

A

To be repaired I paid in 12 months

54
Q

What is goodwill and other intangible assets

A

The difference between the amount paid for acquiring a business and a value of an net Assets of that business one acquired

55
Q

Is property a non-current asset

A

Yes freehold and leasehold property and land used for the business for trading

56
Q

Andy: What are three examples of non-current assets

A

Goodwill, property, investments

57
Q

Andy: what are examples of current assets

A

Cash, stock, debtors

58
Q

Andy: What are two examples of current liabilities

A

Bank overdraft creditors or loans less than 12 months

59
Q

Andy: What are examples of non-current liabilities

A

Bank loads , mortgages and bond issues

60
Q

Andy: What are examples of tangible assets

A

Buildings, stock, debtors or cars

61
Q

Andy, what are examples of intangible assets

A

Brand, trademark or Goodwill

62
Q

What is share capital

A

Where are limited liability businesses can sell shares in order to raise long-term finance. The amount raised its always owed to the business shareholders

63
Q

Andy what is sources of long-term capital

A

Noncurrent liabilities such as loans and mortgages

64
Q

Andy In sources of long-term capital equity comprises of what

A

Share capital and reserves

65
Q

Andy What are reserves in sources of long-term capital

A

Retained profit at a trading and tax

66
Q

Andy What is Working capital

A

Working capital = ( current assets - current liabilities )

67
Q

Andy What sits on the same side of the balance sheets as liabilities

A

Equity due to the fact that it is money owed to the shareholders

68
Q

Andy what are reserves under

A

Equtity Important for the exam

69
Q

Why do share capital reserves differ from a liability

A

In a normal course of trading there are no requirement to repay these amounts

70
Q

Andy: what are reserves

A

Reserves of accumulated profits of the business that I’ve been reinvested into the business

71
Q

Andy, What is working capital

A

Is a money used to finance day-to-day trading activity.

72
Q

Andy: what is working capital used for

A

To pay for wages and raw materials and for overhead such as utility bills

73
Q

Andy: how is working capital calculated on the balance sheet

A

Current assets minus current liabilities. Working capital is known as net current assets

74
Q

Andy: what is working capital also known as

A

Net current assets

75
Q

What are assets employed

A

They are calculated by adding non-current assets to working capital

76
Q

Andy: what does an income statement show

A

The amount of profit or loss made by the business in the last financial year

77
Q

Andy: what is profit

A

Profit is the difference between total income and total expenses

78
Q

Andy: how is gross profit calculated

A

What subtracting cost of sales from turnover

79
Q

Andy: under gross profit is the value of unsold stock including As a cost on the income statement

80
Q

Andy how many prophets are there

81
Q

Andy What are the four profits

A

Gross profit, operating profit, net profit before tax and net profit after tax

82
Q

Andy what is gross profit

A

Income - cost or sales

83
Q

Andy. What is cost of sales

A

Opening stock + purchases - closing stock

84
Q

Andy what is operating profit

A

Gross profit - expenses

85
Q

Andy: if a company For 200 units of stock or £2 each and sold 150 units for £4 pound each during the financial year what is the profit made

A

Turnover equals £600 (150 x 4)
Cost of sales equals £300 (150 x 2)
Gross profit equals £300

86
Q

Andy. Who dors not require operating profit to be shown

87
Q

Andy: What is revenue

A

The total value of all sales excluding VAT invoice During the year it can include both cash and credit sales

88
Q

Andy: what is cost of sales

A

The cost of a stock bought in during the yesr that has been subsequently sold doesn’t include money spent on stock that has yet to be sold

89
Q

Andy what is bet profit before tax

A

Operating profit minus financial cost minus one expenses plus one off/other income

90
Q

Andy What is net profit after tax

A

Net profit before tax minus corporation tax

91
Q

Andy What is paid part of a whole into dividends to the shareholders, the reminders put into reserves

A

Net profit after tax

92
Q

To achieve the profit for the year which items will be added or subtracted on the income statement

A

Finance income, finance costs, overheads, taxation

93
Q

Andy What are the main things on an income statement

A

Shows the results of trading over a period of time usually 12 months
Income statements are on an accured basis
Start with sales
Deductions are shown in brackets
Then the four profits

M92 (12 decks)

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