Accounting Principles

Question 1

Profit and Loss

Answer 1

shows the income and expenditure of a company and resulting profit or loss.

Question 2

Balance sheet

Answer 2

shows what a company owns (assets) and what is owes (liabilities)

Question 3

Cashflow statement

Answer 3

Shows the short term ability for a company to pay its debts

Question 4

Capital allowances

Answer 4

Provide tax relief on certain items purchased for business use such as tools and plant

Question 5

Insolvency

Answer 5

Inability to pay debts. Liabilities exceed assets.

Question 6

Companies house

Answer 6

Is the body responsible for incorporating and dissolving limited companies.

Question 7

Dun & Bradstreet

Answer 7

Is a commonly used financial / credit checking tool in the industry.

Question 8

HMRC

Answer 8

His Majesties Revenue and Customs.

Question 9

Management accounts

Answer 9

Are separate to annual accounts as required by law. They are for internal use or for securing lending with funders.

Question 10

Liquidity Ratio

Answer 10

Measures a company’s ability to convert assets into cash to pay liabilities.

Question 11

Relevant legislation to Accounting

Answer 11

Late payment of commercial debts act 1998.

Late payment of commercial debts regulations 2002.

Question 12

What do those acts entail (late payment of commercial debts act)

Answer 12

8 percent on debts not paid by agreed date.

JCT includes for 5% above Bank of England dealing rate.

Question 13

Debtors are?

Answer 13

A company or individual who owes you or your company money.

Question 14

Creditors are?

Answer 14

A company or individual to whom you owe money.

Question 15

Need for understanding company accounts?

Answer 15

1. To review my own company financial performance.
2. To review financial strength of potential contractors.
3. To assess competition.

Question 16

Profitability ratios

Answer 16

Are the measure of a company’s ability to generate profit.

Question 17

Escrow accounts are?

Answer 17

An account held by a third party on behalf of two parties. They may be used as project accounts.

Question 18

Ways to carry out credit checks?

Answer 18

Credit safe report. Achilles. Construction line.

Question 19

Reason for not appointing a contractor with poor credit rating?

Answer 19

Performance may be hindered. May restrict resources on site. Risk of contractor or supply chain insolvency.

Question 20

Measures if a client insists on appointing a contractor with poor credit rating?

Answer 20

1. Seek bond.
2. Ensure tender is not front loaded.
3. Ensure valuations accurately reflect completed works.

Question 21

Relevant legislation - accounts

Answer 21

Companies Act 2006.
Regulates all private and public companies and provides guidance on accounts obligations and filing returns.