Accounting Ethics, Financial Statements, Cash Flows & Ratios

What is the distinguishing mark of the accountancy profession according to Section 100 of the Code of Ethics?

Acceptance of the responsibility to act in the public interest.

What are the five major ethical threats outlined in the Code of Ethics?

Self-interest, Self-review, Advocacy, Familiarity, and Intimidation threats.

What is a principles-based approach to ethics?

It provides high-level guidance on what the right thing to do is and calls for professional judgment in specific circumstances.

What is the key limitation of relying solely on the law for ethics?

The law is often seen as the minimum standard rather than the highest ethical standard.

What is the fundamental accounting equation?

Assets = Liabilities + Equity (A = L + E).

What are the five elements of financial statements?

Assets, Liabilities, Owners' Equity, Income, and Expenses.

What are the essential characteristics of an accounting asset?

A present economic resource controlled by the entity as a result of past events, from which future economic benefits are expected to flow.

What is the recognition criteria for an asset or liability?

It must be probable that future economic benefits will flow/leave, and it must be reliably measured in monetary terms.

What is the formula for Net Assets?

Total Assets - Total Liabilities = Net Assets (which equals Equity).

What is the distinction between current and non-current items?

Current items are expected to be realized, consumed, or settled within the next 12 months; non-current items are beyond 12 months.

What is the formula for profit?

Profit = Income - Expenses (or Revenue - Expenses).

What is the difference between accrual accounting and cash accounting?

Accrual accounting records transactions when they occur/are earned, whereas cash accounting records them only when cash is received or paid.

What is the formula for Straight-Line Depreciation?

Annual Depreciation Expense = (Cost of Asset - Expected Residual Value) / Asset's Expected Useful Life.

What is Diminishing (Reducing) Balance Depreciation?

A method where depreciation expense decreases over time, calculated as: (Cost - Accumulated Depreciation) × Depreciation Rate.

What does EBITDA stand for?

Earnings Before Interest, Taxation, Depreciation, and Amortisation.

What is Triple Bottom Line reporting?

Reporting on financial performance alongside governance, environmental, and social performance.

What are the three main categories of cash flows in a Statement of Cash Flows?

Operating activities, Investing activities, and Financing activities.

What do Operating Activities represent?

Day-to-day trading activities including cash receipts from customers and payments to suppliers/employees.

What do Investing Activities represent?

Activities relating to the acquisition and disposal of non-current assets and investments.

What do Financing Activities represent?

Activities that change the size and composition of the financial structure, such as equity issues, borrowings, and dividend payments.

What is the Cash Flow Ratio formula?

Net cash flows from operating activities / Current liabilities.

What is Return on Equity (ROE)?

(Profit available to owners / Average equity) × 100.

What is Return on Assets (ROA)?

(EBIT / Average total assets) × 100.

What is the Gross Profit Margin formula?

(Gross Profit / Sales Revenue) × 100.

What is the Profit Margin (EBIT Margin) formula?

(EBIT / Sales Revenue) × 100.

What does the Current Ratio measure?

Current Assets / Current Liabilities (measures short-term liquidity).

What does the Quick (Acid-Test) Ratio exclude that the Current Ratio includes?

Inventory: (Current Assets - Inventory) / Current Liabilities.

What is the Debt-to-Equity Ratio formula?

(Total Liabilities / Total Equity) × 100.

What is the formula for Days Inventory?

(Average Inventory / Cost of Sales) × 365.

What is the formula for Days Debtors?

(Average Trade Debtors / Sales Revenue) × 365.