Accounting Principles Flashcards

1
Q

What is the Relevance of Accountancy?

A

Understand own company performance as well as tendering contractors

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2
Q

Assets vs Liabilities

A

Asset (owned) = cash, accounts receivable, land, property, shares, vehicles, equipment Liabilities (owed)= debt, loans, accounts payable, tax, wages

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3
Q

Fixed and Current Assets

A

Fixed = Property, Vehicles, office furniture
Current = Cash, accounts receivable, goods

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4
Q

Turnover

A

Business Income. Contractors’ turnover is the accrued income from all projects

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5
Q

Cashflow

A

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

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6
Q

Balance sheet

A

Snapshot of a company’s financial position in terms of what it owns and is owed (assets & liabilities)

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7
Q

Profit & Loss

A

Shows a business’s profitability over a year.
Turnover less
Costs (GP)-expenses-(EBITDA)- Earnings Before Interest Tax Depreciation and amortisation (NP)

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8
Q

Insolvency

A

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.

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9
Q

Administration

A

Keeps trading.
Assets protected.
Restructure to pay debtors.

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10
Q

Compulsory Voluntary Arrangement (CVA)

A

Financially strained but not insolvent.
Payment structures to help pay debtors.

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11
Q

Receivership

A

Court/creditors appoint a receiver to secure assets and manage company to pay debtors.
Assets returned after.

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12
Q

Contractor Insolvent Signs

A

Low credit rating, falling working capital (high nr. of contracts), low equity, highly geared, falling cash flow.

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13
Q

Why an issue (Contractor Insolvent Signs)

A

Performance (too busy), limit on resources (min. cash), supply chain issues (slow/non-payment)

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14
Q

Ratio Analysis

A

Business performance metrics

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15
Q

Profitability

A

Revenue less expenses

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16
Q

Liquidity

A

assets to cash speed

17
Q

Current Asset analysis

A

£150k (asset)/£100k (liability) =1.5
(below=risky above=stable).

18
Q

Acid Test

A

Assets-stock/liabilities (stock slow to cash) 1-1.2

19
Q

Credit Control

A

Protect business cashflow.
Process = Credit check, limit, payment terms, auto invoice, failure to pay process (letter, final warning, suspend, legal proceeding)

20
Q

Legislation

A

Companies act 2006; keep accurate records e.g. clearly identify what is owned and owned. Records for tax purposes

21
Q

Taxation

A

Government imposed charges on citizens & companies to finance their expenditure. e.g. Income tax, corporation tax, national insurance, VAT.

22
Q

Revenue

A

Income produced by a company typically measured annually

23
Q

Capital expenditure

A

Costs associated with a company’s balance sheet rather than income statement. e.g. purchase of land, vehicles, buildings, or heavy machinery.

24
Q

Auditing

A

Legal requirement. Prove income and expenditure. Identify performance of company as well as how tax you are liable to pay.

25
Q

Auditor

A

Inspect organisations’ financial accounts to ensure they’re correct and comply with the law.

26
Q

UK Generally Accepted Accounting (GAAP) -

A

Body of accounting standards published by the UK’s Financial Reporting Council (FRC)

27
Q

GAAP Principles: (SSCCFF)

A

Standard Practice– Staff apply rules as standard practice
Sincerity – Objective and accurate
Compensation (non) – Do not get paid based on reporting
Continuity – Should not impact business
Fact – Fact not guesswork
Faith – Expectation of honesty and completeness in data

28
Q

Standard Practice

A

Staff apply rules as standard practice

29
Q

Sincerity

A

Objective and accurate

30
Q

Compensation (non)

A

Do not get paid based on reporting

31
Q

Continuity

A

Should not impact business

32
Q

Fact

A

Fact not guesswork

33
Q

Faith

A

Expectation of honesty and completeness in data

34
Q

Key Info Companies must provide

A

Profit & Loss, Balance Sheet and Cashflow

35
Q

GAAP

A

Country’s individual approach to accounting

36
Q

International Accounting Standards (IAS)

A

Globally adopted method for accounting

37
Q

What tax would a company typically be liable for?

A

Corp tax, national insurance, vat

38
Q

Name ratio analysis examples?

A

Profit
Asset vs liability