Accounting Principles Flashcards
What is the Relevance of Accountancy?
Understand own company performance as well as tendering contractors
Assets vs Liabilities
Asset (owned) = cash, accounts receivable, land, property, shares, vehicles, equipment Liabilities (owed)= debt, loans, accounts payable, tax, wages
Fixed and Current Assets
Fixed = Property, Vehicles, office furniture
Current = Cash, accounts receivable, goods
Turnover
Business Income. Contractors’ turnover is the accrued income from all projects
Cashflow
Incoming vs outgoing money.
A business can be profitable in the long term but suffer from short term cashflow issues. E.g., their income may come predominantly say every quarter, but their running costs are ongoing
Balance sheet
Snapshot of a company’s financial position in terms of what it owns and is owed (assets & liabilities)
Profit & Loss
Shows a business’s profitability over a year.
Turnover less
Costs (GP)-expenses-(EBITDA)- Earnings Before Interest Tax Depreciation and amortisation (NP)
Insolvency
Company unable to pay debts.
Company may appear profitable but cannot service it debts in the short term. Liquidation – Company assets retrieved, and debtors are paid.
Dissolved and wound up.
Administration
Keeps trading.
Assets protected.
Restructure to pay debtors.
Compulsory Voluntary Arrangement (CVA)
Financially strained but not insolvent.
Payment structures to help pay debtors.
Receivership
Court/creditors appoint a receiver to secure assets and manage company to pay debtors.
Assets returned after.
Contractor Insolvent Signs
Low credit rating, falling working capital (high nr. of contracts), low equity, highly geared, falling cash flow.
Why an issue (Contractor Insolvent Signs)
Performance (too busy), limit on resources (min. cash), supply chain issues (slow/non-payment)
Ratio Analysis
Business performance metrics
Profitability
Revenue less expenses