Please enable JavaScript.
Coggle requires JavaScript to display documents.
Accounting Principles Level 1 Hooks - Coggle Diagram
Accounting Principles Level 1 Hooks
Company & Managed Accounts
What is the difference between a company account and management account?
Management accounts are prepared by a company for internal management use, or accounts prepared for a lender, such as a bank to evaluate how the business will repay funding. Management account will not be audited externally. Financial/Company accounting refers to the statutory accounts filed each year that show your company’s revenue, expenses and profits.
1) Financial accounting is meant for external stakeholders
2) Management accounting is presented internally
UK GAAP
What are the main fundamentals of UK GAAP?
The Financial Reporting Council (FRC) publishes accounting standards called UK Generally Accepted Accounting Practice (UK GAAP). For UK businesses, this is a regulatory body that provides guidance when preparing financial reports and accounts.
It is mandatory for businesses to prepare a balance sheet as well as a profit and loss statement and to make these available to HMRC and Companies House. In relation to consistency, UK GAAP dictates what financial documents like these should adhere to.
1) Principle of Regularity
2) Principle of Consistency
3) Principle of Sincerity
4) Principle of the Permanence of Methods
5) Principle of Non-Compensation
6) Principle of Prudence
7) Principle of Continuity
8) Principle of Periodicity
9) Principle of Full Disclosure/Materiality
Definitions
Annual Income Statement
What is an annual income statement?
An income statement (also known as a profit and loss statement), also known as a profit and loss statement, shows revenue and expense over a period of one year. Along with the balance sheet and the cash flow statement, the income statement is one of the three basic financial statements.
Cashflow statement
What is a cashflow statement?
A cashflow statement shows the flow of cash in and out of a business and how this cash has been generated and spent by the business. It is used to check the viability of a firm to pay its bills It shows the following:
1) Net cashflow from operating activities (sum of cash receipts less sums paid eg salaries, interest on loans etc)
2) Returns on investment and servicing of finance
3) Taxation
4) Capital expenditure – assets bought and assets sold
5) Equity dividends paid – payment to equity holders
6) Financing – concerned with long term financing from borrowing and shares
7) Cash in and out – money in hand and bank deposits
Balance sheet
What is a balance sheet?
A statement of the assets, liabilities, and capital of a business or other organization at a particular point in time, detailing the balance of income and expenditure over the preceding period. This is a summary of an organisation’s wealth, and is often described as a snapshot of a company’s financial assets. It is made of 3 parts:
1) Current assets (cash, debtors, inventory) and fixed assets (plant, property etc)
2) Current liabilities (creditor, accrued expenses) and long term liabilities (long-term debt)
3) Equity (stock)
Performance ratios
What is a performance ratio?
Accounting ratios cover a wide array of ratios that are used by accountants and act as different indicators that measure profitability, liquidity, and potential financial distress in a company’s financials
1) Liquidity ratios - The organisation's ability to turn assets into cash in order to pay dents
2) Profitability ratios - Used to assess a business's ability to generate earnings relative to its revenue, operating costs, balance sheet assets or shareholders equity over time, using data from a specific point in time
3) Gearing ratio - Measures the proportion of a company's borrowed funds to its equity. The ratio indicates the financial risk to which a business is subjected, since excessive debt can lead to financial difficulties
Contractors Financial Stability
What would determine whether a contractor is financially stable or not?
1) A Dun & Bradstreet report – this is a business credit report that could be viewed like a personal credit report for businesses
2) Experian report
3) Review of financial accounting performance ratio