Accounting Flashcards
What are the 3 key financial statements all companies must issue?
Balance Sheet
Profit and Loss Account
Cashflow
What is a Balance Sheet?
Shows a company’s assets, equities and liabilities at a point in time
Companies net worth = Assets - Liabilities
What are current assets?
Cash Accounts recoverable Inventory Supplies Prepaid insurance Tangible assets – buildings, investments, land, machinery
What are current liabilities?
Items payable within one year of the balance sheet date Notes payable Accounts payable Interest payable Unearned revenues
What is a cashflow?
The movement of money in and out of a business
What is a profit and loss account?
Shows a company’s income, expenditure and profit or loss over a period of time
Summary of a business’ transactions – how successful the business has been
Turnover – Operating costs / overheads = Operating Profit
What are operating costs?
A company’s overheads External charges Staff costs Depreciation Expenses
What is included in a company’s quarterly update?
Snapshot of;
Growth – projects won
People – new employees
Excellence – new high profile projects won
Innovation – recognition
Buildings & Places – Market Sector approach
How would you assess a company’s financial strength?
Dunn & Bradshaw credit report – checks risk of insolvency
What % of project costs are normally made up of consultant fees?
10 – 15%
What is insolvency?
When a firm cannot meet its contractual financial obligations when they become due
What would you do if a contractor went insolvent?
Secure the site
Speak to the client
Carry out a valuation of all works carried out up to that point
Speak to the bondsman
What is liquidation?
A form of insolvency
When a company’s operations are brought to an end and its assets split between creditors and shareholders
Why is it important a client understands a cashflow?
So they are aware of what and when payments will be due
Ensure they are able to secure funding at the correct time and avoid interest / accelerated funding charges
What is included in a company’s annual report?
Growth and Financial performance of the business Positioning for success Social responsibility Safety People
What is ratio analysis?
Various methods of analysis to assess financial strength
Ratio - What is Liquidity
Acid test ratio - ability to pay off current debts without seeking external funds (using quick assets, converted to cash within 90 days)
Ratio - Gearing
exposure to loans / ability to pay off debt. Total debt / shareholders equity. 10% good, 50% risky
Ratio - profitability
balance sheets
Ratio - financial
selling stick and using assets
What is the difference between a P&L account and a balance sheet?
P&L shows income, expenditure & Profit / Loss
Balance sheet shows assets and liabilities at a given point in time
Where do your accounts go?
Balance sheets – to company’s house, investors, annual report
What is profit?
Profit = Total Revenue – Total expenditure
Why is it important to compare a company’s Profit and Loss statement with their cashflow?
Under accrual method of accounting, revenue and expenses can be logged before cash changes hands
If a company lands a big contract, this is recognised as revenue and income but the company may not recieve the money until a later date. P+L statement will show company earning a profit whilst cashflow will show otherwise
