Account Principles and Procedures

Question 1

What is a profit and loss statement?

Answer 1

A statement which summarises a companies revenues, cost, and expense over a period of time e.g. annually
*To show profit after cost deduction

Question 2

What is a balance sheet?

Answer 2

A snap shot of companies finance showing assets, liabilities and owners equity.

Question 3

Does a balance sheet show cash?

Answer 3

Yes under current assets

Question 4

What is a cash flow statement?

Answer 4

• Reporting mechanism to show the cash in and cash out of a business/project
• Sets out the extent business or project has enough cash to cover costs

Question 5

What is the difference between a balance sheet and cash flow/cash flow statement ?

Answer 5

Balance sheet is a snap shot in time showing a companies assets and liabilities

Question 6

What are cash flow management techniques?

Answer 6

• Prompt payment from the client
• Advance payments
• Payment for offsite materials
• Pay subcontractors as late as contractual possible I.e final date for payment

Question 7

Types of taxation relevant to the Construction industry?

Answer 7

1. CIS (construction industry scheme

2. VAT

Question 8

What is insolvency?

Answer 8

When a company is unable to pay their debts when they fall due for payment

Question 9

How can you test for insolvency?

Answer 9

1. Cash flow test. The extent of which the company is able to pay their debts when they fall due for payment.
2. Balance sheet test. Check whether the companies liabilities are greater than their assets

Question 10

Can you tell me about DNBI credit checks?

Answer 10

1. Financial summary of subcontractor
2. Failure to score out of 100
3. Recommended credit exposure
4. Delinquency score
5. Balance sheet

Question 11

What documents are included in a companies account?

Answer 11

1. Profit and loss statement
2. Balance sheet
3. Notes of the account
4. Directors report
5. Auditors report
6. Name and signature of company director

Question 12

What do you submit these documents to?

Answer 12

Companies house and HMRC

Question 13

When reporting margin can you tell me about the straight line rule and how rule?

Answer 13

1. Margin at the end of the job is held and reported as profit each month
2. Gradual increase in margin through project duration understate at the start of the project then when it comes closer to the end of the project to reflect actual margin