Accounting Flashcards
Corporation tax?
Based on annual profits.
Company accounts, why?
Tax purposes. Demonstrate financials.
Financial accounts vs management accounts?
Financial accounts are external and filed with Companies House, management accounts are internal.
What is an escrow account?
Holding bank for moneys not released until conditions are met.
What is a project bank account?
Ring-fenced bank account for payments to be made to supply chain members.
What is tax depreciation?
Expense claimed by a taxpayer on tax returns to compensate for the loss in value of tangible assets.
Name three accounting ratios?
Liquidity, profitability, gearing.
What are capital allowances?
Allows taxpayers to get tax relief by deduction against annual taxable income.
What are the key financial statements and documents?
Cash flow statement.
Profit and loss statement.
Balance sheet.
Gross vs net?
Gross is before deductions, net is after.
What is equity?
Value that someone has in a business.
Why should surveyors understand company accounts?
Assess financial health of competitors.
Assess financial stability of tenderers.
Aid in preparing financial accounts in their own company.
What is CAPEX?
Spent to acquire or improve an asset like equipment and buildings.
What is Revenue Expenditure? OPEX
Operating expenditure, in day to day running of the business.
What is a balance sheet?
A snapshot of financial position at a point in time. Shows assets, liabilities and equity.
What is a current asset?
Cash and other assets to be converted into cash within a year.
What is a fixed asset?
Long term, difficult to be converted quickly into cash.
What is a cash flow forecast used for?
Future planning.
Overdue payments.
Cash gaps/surplus.
Track spending targets.
Why is cashflow important for construction projects?
Understand commitment over project duration.
Gain external funding where needed.
Indication of financial difficulty.
What is insolvency?
Inability to pay off debts.
Why would you not appoint a contractor with a low credit rating?
Risk of insolvency and poor performance.
How do you determine financial standing of a company prior to doing business?
Dun & Bradstreet report creates a business credit report.
Signs of contractor insolvency on a construction project?
Slowing works.
Low supply of materials.
Increase defects.
Management changes.
Inflated payment requests.
What would you do in the event of contractor insolvency?
Inform all parties involved.
Inform the bondsman (bank/insurance firm).
Stop payments to the contractor.
Terminate contract.
Administration vs liquidation?
Administration is where someone is appointed to manage company affairs for the creditors.
Liquidation is shutting down and selling off assets to pay creditors.
What is bankruptcy?
Deal with debts they cannot pay through individuals.
Assets shared amongst those you owe money to.
Principles of GAAP?
Regularity
Consistency
Sincerity
Permanence of Methods
Non-Compensation
Prudence
Continuity
Periodicity
Materiality
Utmost Good Faith
What is the Construction Industry Scheme?
Contractors directly deduct money from subcontractors payments and pass it to HMRC.
Where does depreciation fall on a P/L statement?
Expenses.
How can a balance sheet be used?
To evaluate a companies financial health, through calculations like net working capital, liquidity ratios. To make financial decisions on whether a business can take on more financing and debt for investment.
What are the dangers of using companies house for financial statements?
Could be outdated as they are published up to four months after financial year.
Smaller businesses only have to include a balance sheet, not income statement or cash flow statement.
