Accounting

Question 1

What are the 3 key financial statements all companies must issue?

Answer 1

Balance Sheet
Profit and Loss Account
Cashflow

Question 2

What is a Balance Sheet?

Answer 2

Shows a company’s assets, equities and liabilities at a point in time
Companies net worth = Assets - Liabilities

Question 3

What are current assets?

Answer 3

Cash
Accounts recoverable
Inventory
Supplies
Prepaid insurance
Tangible assets – buildings, investments, land, machinery

Question 4

What are current liabilities?

Answer 4

Items payable within one year of the balance sheet date
Notes payable
Accounts payable
Interest payable
Unearned revenues

Question 5

What is a cashflow?

Answer 5

The movement of money in and out of a business

Question 6

What is a profit and loss account?

Answer 6

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

Question 7

What are operating costs?

Answer 7

A company’s overheads
External charges
Staff costs
Depreciation
Expenses

Question 8

What is included in a company’s quarterly update?

Answer 8

Snapshot of;
Growth – projects won
People – new employees
Excellence – new high profile projects won
Innovation – recognition
Buildings & Places – Market Sector approach

Question 9

How would you assess a company’s financial strength?

Answer 9

Dunn & Bradshaw credit report – checks risk of insolvency

Question 10

What % of project costs are normally made up of consultant fees?

Answer 10

10 – 15%

Question 11

What is insolvency?

Answer 11

When a firm cannot meet its contractual financial obligations when they become due

Question 12

What would you do if a contractor went insolvent?

Answer 12

Secure the site
Speak to the client
Carry out a valuation of all works carried out up to that point
Speak to the bondsman

Question 13

What is liquidation?

Answer 13

A form of insolvency

When a company’s operations are brought to an end and its assets split between creditors and shareholders

Question 14

Why is it important a client understands a cashflow?

Answer 14

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

Question 15

What is included in a company’s annual report?

Answer 15

Growth and Financial performance of the business
Positioning for success
Social responsibility
Safety
People

Question 16

What is ratio analysis?

Answer 16

Various methods of analysis to assess financial strength

Question 17

Ratio - What is Liquidity

Answer 17

Acid test ratio - ability to pay off current debts without seeking external funds (using quick assets, converted to cash within 90 days)

Question 18

Ratio - Gearing

Answer 18

exposure to loans / ability to pay off debt. Total debt / shareholders equity. 10% good, 50% risky

Question 19

Ratio - profitability

Answer 19

balance sheets

Question 20

Ratio - financial

Answer 20

selling stick and using assets

Question 21

What is the difference between a P&L account and a balance sheet?

Answer 21

P&L shows income, expenditure & Profit / Loss

Balance sheet shows assets and liabilities at a given point in time

Question 22

Where do your accounts go?

Answer 22

Balance sheets – to company’s house, investors, annual report

Question 23

What is profit?

Answer 23

Profit = Total Revenue – Total expenditure

Question 24

Why is it important to compare a company’s Profit and Loss statement with their cashflow?

Answer 24

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