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RICS APC - EVIE > Accounting Principals > Flashcards

Accounting Principals Flashcards

1
Q

What is a statement of profit and loss?

A

The profit and loss is a financial statement that summarizes the revenue, cost, and expenses incurred during a specified period.

It indicates how the revenues are transformed into the net income or net profit.

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2
Q

What is a profit and loss statement often referred to as?

A

Income statement

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3
Q

What is a balance sheet ?

A

The term balance sheet refers to a financial statement that reports a company’s assets, liabilities and shareholder equity at a specific point in time, typically annually.

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4
Q

What is a balance sheet also known as?

A

Statement of financial position

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5
Q

What are liabilities ?

A

debts you owe to other parties like loans, credit card balances and taxes.

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6
Q

What are assets?

A

Items of value a company owns

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7
Q

What is a cashflow statement ?

A

“1) The cash flow statement (CFS) shows how well a company generates cash to pay its debt obligations and fund its operating expenses.

2) Demonstrates how much liquidity a company has.

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8
Q

What is the difference between profit and loss and a balance sheet?

A

“The profit and loss account is a statement of income and expenses which shows the net profit and loss for a particular period
Balance sheet is the statement of assets liability and capital which shows the actual financial position of an entity at a certain point.”

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9
Q

Are profit and loss accounts current ?

A

No they are retrospective

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10
Q

What are management accounts ?

A

Management accounts are prepared for internal use generally to record, plan and control a companies activities and help with decision making processes such as purchasing new assets or employing staff.

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11
Q

How do you forecast you individual fee income?

A

“Consider:
Framework contracts
Upcoming projects
Scheduled appointments”

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12
Q

Give me some examples of how you forecast your individual fee income?

A

I keep a weekly and monthly log of ongoing projects, billing dates and amounts due to ensure visibility on what is due.

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13
Q

What does a Dun and Bradstreet report show?

A

It compiles business information to measure the creditworthiness of a company. They are the business equivalent of a credit report check. It will colour code companies financial status from green, red, and orange/yellow to show their risk.

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14
Q

What are the limitations of a Dun and Bradstreet Report?

A

It is limited only to the latest submitted documents on companies house.

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15
Q

Where can you find infomation on a company’s financial status?

A

Companies House or filed accounts

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16
Q

What do companies need to provide every year ro comply with the Companies Act?

A

As part of the companies Act 2006 a company has to return annual accounts.

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17
Q

Why do companies keep accounts?

A
  1. For regulatory purposes,
  2. to keep tract of outgoing and in goings
  3. compare performances and to plan future growth.
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18
Q

How are fee proposals prepared?

A
  1. A fee proposal is an estimate of time required to carry out a job multiplied by the cost of your hire on an hourly rate.
  2. A percentage will then be added for company overheads.
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19
Q

What is bankruptcy ?

A

The legal process where people or companies who cannot repay debts may seek relief from government of their debt. It is court ordered. It stays on your financial record for 10 years.

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20
Q

What is retention?

A

Retention is witholding a percentage of a contract sum to ensure the contractor properly completes the activities required.

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21
Q

What is capital expenditure?

A

Money spent by a business or organisation on acquiring or maintaining fixed assets such as land, buildings and equiptment.

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22
Q

What is auditing?

A

“1. Term used to describe the examination and verification of a company’s financial records.
2.ensures financial statements are prepared in accordance with relevant accounting standards.”

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23
Q

What is accounting?

A

Is the process of keeping financial accounts of something.

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24
Q

What are company accounts ?

A

A legal requirement submitted to the HMRC. It is a record of the companies financial performance.

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25
Q

What is VAT?

A

Value added tax - The VAT rate business charge depends on their goods and services.

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26
Q

When should a company be registered for VAT?

A

If the company has a VAT taxable turnover to be greater than £85,000 in the last 12 months or in the proceeding 30 day period.

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27
Q

Example the different VAT rates:

A

“Standard rate = 20%
Reduced rate = 5%
Zero rate = 0%”

28
Q

What items are at 20% VAT?

A

Most things

29
Q

What items are at 5% VAT?

A
  1. Supplying and installing certain mobility aids for elderly people.
  2. Supplying and installing certain energy saving materials and equiptment.”
30
Q

What items are at 0% VAT?

A

“Supplying or installing goods for disabled person in their home
Making alterations to suit a disabled person.”

31
Q

What is domestic reverse charge?

A

The domestic reverse charge is a VAT procedure that was implimented in the UK on March 1st 2021 for contruction services. Under the domestic reverse charge procedure, the buyer (contractor) accounts for all the VAT rather than the supplier (subcontactor) this is to account for missing VAT payments.

32
Q

Who does Domestic Reverse Charge apply to ?

A

Main contractors and subcontractors.

33
Q

What is EBITDA?

A

Earnings Before Interest Taxes, Depreciation and Amortization and its margins reflect a firms short term operational efficiency.

EBITDA is useful when comparing companies with difference capital investment, debt and tax profiles.

34
Q

What is GAAP?

A

Generally Accepted Accounting Principals - regulates how company accounts should be prepared.

35
Q

Who is employed when a company becomes insolvent?

A

“Administator who will try and keep the compant going.
Liquidator who will wind up the company and sell assets.”

36
Q

What options are available to a company that has gone insolvent?

A

Administation, Complany Voluntary Agreement, Compulsory Liquidations.

37
Q

What is administration ?

A

A method of wholding a company together, whilst plans are formed to either restrucutre the business or sell assets.

38
Q

Which rule of conduct relates to company finances ?

A

1 and 5

39
Q

What is a creditor ?

A

Someone that owes you money

40
Q

What is a debtor?

A

Someone who owes you money

41
Q

What do companies need to provide every year ro comply with the Companies Act?

A

The act requires directors to ensure to prepare and file the annual accounts and to ensure it gives a true and fair view.

42
Q

How do you deliver healthy cashflow?

A

“Ensure cash coming in is greater than that going out.
Working within my competence
Financial forecasting
Good client care”

43
Q

Name a type of tax to consider if you set up your own company?

A

Corporation Tax

44
Q

What is credit control?

A

System used by businesses and central banks to make sure that credit is given only to borrowers who are likely to be able to repay it.

45
Q

What are Capital Allowances?

A

“Tax reductions that uk businesses can claim on eligible capital expenditures

46
Q

What is insolvency ?

A

When a business can no longer meet your financial obligations i.e not enough money coming in to match money going out.

47
Q

Whats solvency?

A

The possession of assets in excess of liabilities - ability to pay ones debts.

48
Q

What are the signs of insolvency ?

A

“Overvaluing interin Valuations
Front Loading
Dissatisfied workforce
Asking for upfront payments

49
Q

What is the difference between turnover and profit?

A

“Turnover is your total business income during a set period of time (Net sales figure).
Profit refers to earnings that are left after expenses have bee deducted.”

50
Q

What is meant by the term net and gross?

A

In salary terms gross is the total salary and net is the total salary minus tax.

51
Q

What is Amortization?

A

The process of gradually writing down a loan or intangible asset

52
Q

What do you know about your companies accounts?

A

“Company accounts are summary of an organisations financaily activity over a 12 month period.
They are prepared for companies house and HMRC and consist of a balance sheet, a profit and loss statement and a cashflow statement.
They also contain cash flow forecasting which is the process of obtaining an estimate of a companies financial position based on anticiapted payment and recievables. “

53
Q

Why do surveyors in your pathway need to understand and be able to interperate company accounts?

A

For assessing the covanant strength of potential buyers.

54
Q

What are the contents of the a set public limited company accounts?

A

“1. Chairman’s statement
2. Independent auditor’s report
3. Income statement (profit and loss)
4. Statement of financial position (balance sheet)
5. Corporate Governance report
6. Remuneration report (money paid for work or service).”

55
Q

What are included in statutory accounts?

A

“Balance sheet
Profit and Loss
Notes about the accounts
Directors reports.”

56
Q

What is the main function of statutory accounts?

A

To share annual financial information with shareholders, HMRC and companies house.

57
Q

What are consolidated set of accounts?

A

A set of financial statements that combine the financial results of a parent company and its subsidiaries into one set of accounts

58
Q

What is a limited liability partnership?

A

The individual partners have limited liability

59
Q

What do UK GAAP do?

A

“Provides a framework for the preparation of company accounts in the UK
It is the body of accounting standards published by the Financial Reporting Council (FRC).”

60
Q

What was the new GAAP effective from?

A

01-Jan-15

61
Q

What is a set of accounts

A

Balance sheet and profit and loss

62
Q

What is considered to be a good margin for EBIDA

A

Depends on the company but 10% is considered good

63
Q

What are non-current assets?

A

Long-term and have a useful life of more than a year.

64
Q

What are current assets?

A

A companies short term assets such as cash

65
Q

What is Liquidation Value ?

A

“The basis of value can be used for a group of assets sold in a piecemeal basis considering the costs of getting the assets into a a saleable condition.
- Not used in the UK.”

RICS APC - EVIE (19 decks)

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