Finance Complete Flashcards
Why are financial objectives needed?
Measure financial performance Maintain the business as a going concern For decision making Information for stakeholders Allows comparison
What is cost minimisation?
The process by which businesses attempt to maximise profits by keeping costs low.
How can cost minimisation be achieved?
Cost minimisation can be achieved by a tactical decision such as changing suppliers or through a more strategic decision such as to relocate abroad.
What are the benefits of cost minimisation?
If a business can minimise costs without having a negative effect on the revenue then the profit margins will be improved.
What are cashflow targets?
A financial objective focused on maintaining a healthy cash balance
What are the benefits of cashflow targets?
A firm which doesn’t set and achieve a healthy target may struggle to survive due to liquidity problems.
What is accounting?
Accounting is the process of control on the expenditure of a business and is a vehicle for the publication of figures for profit, value and cash.
What are the two forms of accounting?
Financial and Management
Name all 7 Accounting concepts?
Consistency Going concern Matching Materiality Objectivity Prudence Realisation
What is the accounting concept consistency?
Transactions and valuation methods are treated the same way from year to year, or period to period. Users of accounts can, therefore, make more meaningful comparisons of financial performance from year to year. Where accounting policies are changed, companies are required to disclose this fact and explain the impact of any change.
What is the accounting concept going concern?
Accountants assume, unless there is evidence to the contrary, that a company is not going broke.
What is the accounting concept matching?
The dates used to record transactions are those when the transaction occurred and not when the actual payment is made.
What is the accounting concept materiality
Where decisions are required about the appropriateness of a particular accounting judgement, the “materiality” convention suggests that this should only be an issue if the judgement is “significant” or “material” to a user of the accounts – transactions are recorded according to their importance
What is the accounting concept objectivity?
This implies that accounting information is prepared and reported in a “neutral” way. In other words, it is not biased towards a particular user group or vested interest
What is the accounting concept Prudence?
When here is any uncertainty as to the value of profits/losses or valuations, this principle suggests that it is right to understate the level of profits and overstate the level of losses – take a pessimistic view.
