Term 1 Theory Flashcards
triple bottom line
measures a company’s degree of social resp, economic value and environmental impact
internal auditors
- employed by the company
- examine business-related issues
external/independent auditors
- employed by the shareholders
- give their opinion on the financial statements
purposes of cash flow statement
- reflect a summary of all cash rec and paid during the year
- indicates company liquidity
- helps with risk identification
unqualified
good report, no problems
qualified
has problems in certain areas of the comapny, must be fixed
disclaimer
negative, auditor did not want to give a report
purpose of king code reports
gives guidelines on how to implement good business practices contributing to social, environmental and economics of the country
can the business pay off all it debts?
solvency
to what extent does the business rely on borrowed funds?
gearing/risk (debt: equity ratio)
will the business be able to pay of its immediate debts?
liquidity
how well is the business managing or controlling its expenses?
profitability
control of fixed assets
- have periodic physical counts
- have an asset ledger
- the owner must approve all buying/selling of fixed assets
control of stock
- physically protect
- keep a stock record
- make sure stock is up to date
control of debtors
- do background checks
- have a policy
- send invoice asap
control of cash
- immediately record all cash transactions
- only allow certain individuals to access cash
- avoid holding too much cash
directors
required to the run the company at the best of their ability
corporate governance
involves balancing the interests of all involved in the company: shareholders, suppliers, customers, the government, etc. It is influenced by the company’s board of directors and its processes are used to direct and manage the company.
stock holding period
av stock / COS
stock turnover rate
COS / av stock
debt : equity ratio
non curr liabilities : shareholders equity
shareholders equity
- OSC
- retained inc
- non-current assets
liquiditity ratios
current and acid test
return on shareholder’s equity
np after tax / av. shareholders equity
return on average capital employed
profit before tax + finance cost /
average capital employed
capital employed
OSE + loans
return on total capital employed
profit before tax / cap empl @ end of year
periodic vs perpetual
periodic: cos only calculated periodically
perpetual: continuous checks and taking of stock
adv of specific identification
- simplest stock valuation form
- stock values are realistic as they are based on actual cost
adv of fifo
- stock values are realistic as they are based on most recent cost
- is suited for business selling discrete (sep) items
weighted average
- best suited for businesses selling large volumes of identical small items of stock
business entity
the affairs of the business must be kept entirely separate from that of the owners (operate separately)
historical cost
assets are valued in the books at the original amount of paid for them
going concern
financial statements are prepared on the assumption that the business will still be operating in the foreseeable future
matching concept
the transactions of the business must be reported in the correct time period
prudence concept
financial results are reported in a conservative manner
materiality
material or important items must be shown in the financial statements
finance cost
all interest expense of financial assets and stuff like that…
reasons for bank recon
validity, accuracy, completeness
- help to avoid fraud and theft
- help to identify errors
accounting equation
A = L+ OE
inclusive VAT
amount x 15/115 = vat amount
zero-rated items
- brown bread
- fresh fruit
- eggs
exempted items
- school fees
- petrol & diesel
- financial services
tax evasion
recording output vat dishonestly, reducing the value illegally
tax avoidance
acceptable
legally reducing amount to be paid to SARS through donations, etc
amount owed to SARS
output - input
output tax
vat charged by the vendor when it sells goods (goods going OUT)
input tax
the vat charged or paid by the vendor when acquiring goods (goods come IN)
reversal of discount allowed
output vat
discount received
negative input
why we do creditors recon
so that queries and discrepancies can be fixed as soon as possible. fraud and error can be minimized.
breakeven point
fixed costs / (sp - vc per unit)
IN THE BUDGET BUT NOT PROJ INC STATEMENT
- loan
- drawings
- dividends
IN PROJ INC STATEMENT BUT NOT BUDGET
- depreciation
- bad debts
- discounts
NAV
no of shares issued
EPS
np after tax / no of shares issued
DPS
dividends paid & decl / no of shares issued
creditors payment period
av creditors / credit purhcases
gearing ratios
- debt:equity
- return on capital employed
drawings vat
negative input
if we owe sars an amount from last month
output = negative
if sars owes us an amount from last month
input = positive
CPJ/CRJ items that don’t get vat
interest, salaries, creditors control
discount allowed
negative output
