5.Accounting Principle And Procedures Flashcards
a) What is the difference between a profit and loss statement and a balance sheet?
b) What headings would you find on a balance sheet?
A balance sheet is a statement of the assets, liabilities, and capital of a business at a particular point in time, detailing the balance of income and expenditure over the preceding period. (Assets = Liabilities + Equity).
The profit and loss statement summarizes the revenues and expenses generated by the company over the entire reporting period. It is also referred to as the income statement and/or statement of earnings. (Profit = Revenue – Expenses).
The profit and loss statement summarizes the revenues and expenses generated by the company over the entire reporting period. It is also referred to as the income statement and/or statement of earnings. (Profit = Revenue – Expenses).
What are capital allowances?
In accordance with the Capital Allowances Act 2001, this is a form of tax relief for businesses. They can usually be claimed for in relation to purchase of existing property, refurbishment, extensions and new build.
a) What is revenue?
b) What is capital expenditure?
Revenue is income from business activities usually from the sales of goods and services.
Capital expenditure is money spent by a business to acquire fixed assets such as land, buildings or equipment.
A) What are the basics of cash flow management?
B)How can a cashflow be used?
A) The basic principles are to ensure that sufficient cash is held to meet firm’s payment obligations. It involves an analysis of money coming in versus money going out over a given period or timeline to calculate liquidity.
B) The purpose of a CFF is to ensure that the employer has an accurate assessment of what needs to be paid to the contractor and at what periods.
The most common use of a CFF is to monitor the progress of the works on site against the agreed programme. Monitoring progress against a CFF should only be taken as indicative and the most accurate form of measurement is a physical assessment of works carried out on site versus the programme.
What’s Australian accounting standards
An accounting standard is a technical pronouncement that sets out the required accounting for particular types of transactions and events. The accounting requirements affect the preparation and presentation of an entity’s financial statements.
- numbered from 1: International Financial Reporting Standards (IFRSs)
- numbered from 101: International Accounting Standards (IASs)
The accounting standards used by entities for preparing financial reports under the Coporation Law (commonly referred to as AASB-Series standards) are made by the AASB, a body established under part 12 of the Australian Securities and Investments Commission Act 1989.
What is auditing?
Auditing is the examination of accounts to ascertain the financial status of the company, and ensure a true and fair value of works is being represented. This is important for shareholders.
Please tell me how you can use an audit report to assess your subcontractors?
Audit reports show the company’s annual turnover, I would use them to assess the contractor’s suitability for the works as it was company policy for their contract sum to be only 25% of their annual turnover to aid their cash flow and ensure the company remains liquid. The report also indicates the company’s insolvency score which is a predictive indicator of business insolvencies. The higher the D&B Insolvency Score, the more healthy the company’s status and the less likelihood that the company concerned might cease its activities within the coming 12 months.
What do you know about gearing ratios?
What is ratio analysis in accounting? Can you give me an example?
Ratio analysis is used to evaluate various aspects of a company’s performance. For example profitability is calculated using the analysis; gross profit over net sales x 100. Liquidity is calculated by dividing current assets over current liabilities. The ideal ratio is 2:1, if it is 1.1 then this could imply the firm is not able to meet its debts quickly.
How would you check a company’s financial stability?
Look at historic accounts for level of profitability. Review the quality of financial statements. Check the businesses liquidity (ability to meet payment obligations) and business solvency (ability to pay debts).
What are examples of company overheads?
Overhead expenses are all costs on the income statement except for direct labour, direct materials, and direct expenses. Overhead expenses include accounting fees, advertising, insurance, interest, legal fees, labour burden, rent, repairs, supplies, taxes, telephone bills, travel expenditures, and utilities.
