Chapter 6 Repeated Flashcards
Are an income statement and profit loss account the same?
Yes
What basis is a cash flow done on
Actual basis
What basis is an income statement done on
Accrual basis
What is an accrual basis
Count for money in. Even if they haven’t paid it yet.
If invoiced in that period, you count it in even if you haven’t been paid it
If you have a bill outstanding, you still count it as money out even though you haven’t paid it… what’s that basis?
Accrual
A broker raises a new business premium with their insurer on 1st December with 60 day credit. Will they include this on their income statement
Yes. It’s accrual basis
An IT company sends a bill in December 2020 on 30 day term but the insurer doesn’t want to pay to January. When would the insurer put that money out on accrual basis
In December 2020
What is actual basis
Count money out when it actually goes out and when it comes in
What is a balance sheet
A snapshot. It shows what the company owns, what it owes, what it’s worth in a true and fair view
What are net assets
What you own minus what you owe
Are net assets total assets
No
What are reserves
Retained profit
Assets are what
What we own
Liabilities are what
What we owe
What are non current (fixed) assets
Something you keep for more than 12 months. Buildings, computers, cars, machinery etc
Do non current assets depreciated against tax?
Yes
What does depreciated against tax mean?
It reduces over its lifetime.
What is the deprecation of non current assets
asset value - residual value / years its going to be kept
A car is purchased for £20k, the residual value is £4k and you’ll keep the car for four years. What is the depreciation value
Value £20k - Residual £4k = £16k
divided by 4 years owned
= £4k
What is straight line depreciation
The same amount of every year
Brian buys a company car for £20k, he is going to keep it for 4 years and in 4 years time the residual value is £4k. What depreciation will be in year two only
£4,000 - will always be the same amount every year
Can non current assets be depreciated
Yes
What are current assets
Use in 12 months -
STOCK, CASH AND DEBTORS
What are debtors
People that owe you money
What are the two types of assets
Tangiable or intangiable
Almost all assets are waht
tangiable - buildings ,cars , it, debtors, stock
What are intangible assets
items you can’t put a value on - GOODWILL and BRAND
Are intangible assets current or non current
always non current
When would you put intangible assets in your accounts
When selling the business
What are current liabilities
OVERDRAFTS, BANK LOANS THEN LESS THAN 12 MONTHS AND CREDITORS
What are creditors
Bills you havent paid
What are non current liabilities
Things you owe for more than 12 months
MORTGAGES AND LOANS OVER 12 MONTHS - NEVER PRO RATA
Income Statement
What are the three profits:
Gross Profit
Net Profit before Tax
Net Profit after Tax
What is Gross Profit
Used for companies with stock. Shops etc
What is the Gross Profit formula
Income - cost of sales (Opening stock and purchased minus closing stock)
What is the cost of sales
Opening stock and purchased stock minus closing stock
Do brokers have gross profit
No - no stock
If you are a shop or someone who sells goods, how do you calculate your net profit before tax
Gross profit - expenses INCLUDING DEPRECIATION (salaries etc)
if you are a broker or insurer, without stock do you have gross profit
No. net profit before tax
What is net profit before tax
Income - expenses
What happens after net profit before tax
Corporation tax is added then its net profit after tax
What is the bottom line
Net profit after tax
What happens to net profit after tax
Usually given dividends to shareholders and then reinvested in the business as reserves
What are reserves in accounting
RETAINED PROFIT
Where do reserves on a balance sheet go under
An equity
Are reserves an asset
NO AN ASSET
What are the 4 different ways of describing money in
Turnover, income, revenue, sales
If net profit before tax is in brackets what does that mean
Its a loss - no profit
What three things go on a balance sheet
Assets, Liabilities, Equity
How do you work out total assets on balance sheet
Non - current assets (depreciated)+current assets
Is total assets NET assets
No - the total of what you own
What are liabiltiies
What you owe.
How do you work out total liabilities on balance sheet
Current liabilities + non current liabilties
How do you calculate your net assets on a balance sheet
Assets - liabiltiies
WHAT ARE NET ASSETS
ASSETS - LIABILTIES
What is equity
SHAREHOLDERS CAPITAL + (RETAINED PROFIT) RESERVES
What is a cash flow statement
On an actual basis. Money in and money out. Like our bank account.
Its year 2020.
Money invoiced in 2020 but not yet paid goes into what
Income statement
Its year 2020.
Money invoiced in 2020 but paid in 2021 goes where
Cash flow
Does deprecation of assets go into a cash flow
NEVER - ONLY INCOME STATEMENT
Where do expenses incurred in the previous year but paid this year go
A cash flow statement
Expenses incurred this year but not yet paid where does this go
Income statement
What does accrual mean
Invoiced but not yet paid
If cash flow is low it means what
not good.
Insurer accounts
What is gross written premium
Money in -Premium before IPT
Insurer accounts
What is outward reinsurance premium
Money in - What you pay reinsurers
Insurer accounts
What is net written premium
Money in : Gross written premium - outward reinsurance
Insurer accounts
How do you calculate unearned premium of a 12k premium incepted in October.
Money in -Unearned premium of £9k deducted from net written premium
Insurer accounts
How to calculate net earned premium
Money in - Gross written premium minus reinsurance premium and unearned premium.
Insurer accounts
What is net investment returns
Money in - Money you make/ hold. Can be in shares, interest etc
Insurer accounts
Gross claims incurred
Money out - What you pay the policholder.
Insurer accounts
What is reinsurer share
Money out
Insurer accounts
What is gross claims incurred - reinsurer share
Claims incurred net of reinsurance
Insurer accounts
What is acquisition costs
Broker commission. Deducted from claims incurred net of reinsurance
Insurer accounts
What are other operating expenses
Money out - salaries, rent etc Deducted from claims incurred net of reinsurance
Insurer accounts
How to calculate total expenses
Claims incurred net of reinsurance - operating expense’s - acquisition costs
Where do reserves go
EQUITY
Insurer accounts balance sheet:
What are the three headings
assets, liabilty , equity
Insurer accounts balance sheet:
What is an intangible asset
The brand
Insurer accounts balance sheet:
What are investments
ASSET: Shares, bonds
Insurer accounts balance sheet:
What is reinsurers share of contract liabilities
ASSET: Money where reinsurer owes you money but claims haven’t been settled
Insurer accounts balance sheet:
What are deferred acquisition costs
ASSET: Commission already paid to the broker on the unearned premium
Insurer accounts balance sheet:
What is provision on unearned premium
LIABILITY
Insurer accounts balance sheet:
What is provision for losses and loss adjusment
A LIABILITY: Claim reserves
Insurer accounts balance sheet:
What are reinsurance liabiltiie
LIABILITY: What you owe reinsurers but haven’t paid them
Insurer accounts balance sheet:
Where do debtors go
ASSET
Insurer accounts balance sheet:
Where do creditors go
LIABILITY
Insurer accounts balance sheet:
What is shareholder equity
SHAREHOLDER CAPITAL + RESERVES (RETAINED PROFIT)
What is Capital
Sum of the equity and long - term debt
What is regulatory capital
Sum of the equity and long term debt for insurance
What is the double entry principle
Reflects that the business both receives and gives in each transaction
In addition to bank loans and mortgages, how may business raise long- term finance
issuing shares
retaining profits by reserves
What is a share capital on a balance sheet
Owned by the shareholders- the money a company raises by issuing shares of common or preferred stock.
What is working capital on a balance sheet
Money used to finance day - to day trading activities. its used to pay wages etc
How do you work out assets employed on a balance sheet
Calculated by adding non - current assets to working capital
