Accounting Principles Flashcards
What is the Companies Act 2006?
The Companies Act 2006 is an Act of the Parliament of the United Kingdom which forms the primary source of UK company law.
Contains:
The act contains a statutory statement of directors’ general duties
States the financial statements all companies must provide (balance sheet, cash flow statement and profit and loss)
What is a balance sheet?
A balance sheet shows a company’s assets, liabilities and equity at a specific point in time.
It can be used to assess its financial position or health, and be compared with previous balance sheets to identify trends.
What is a profit and loss account?
A summary of the business’s income and expenditure
Usually prepared on an annual basis
Used to show the businesses ability to generate profit by increasing revenue, reducing costs, or both
INCOME - COSTS = PROFIT / LOSS
What is a cashflow statement?
How much a business expects to pay out and take in at any given time
Can identify when there may be difficulties in meeting liabilities (paying amounts due) - cash flow problems.
Early identification can enable strategies to be put in place to ease the burden.
Arrange overdraft facility / loan / extend payments.
How to carry out a credit check and what they show
Credit safe
- Company credit reports
o Credit score
o Financial performance
o Key Risk Indicators
o Company ownership
o Directors and shareholders
What are the key financial statements all companies must provide under the companies act 2006?
1) Profit and Loss Statement
2) Balance Sheet Statement
3) Directors Report – for large companies. summary of trading activities
What is the difference between a profit and loss vs a balance sheet?
- Profit and Loss Statements can look great one year due to one off profits.
- Balance sheets give a broader view of the company’s health.
Why is it important for chartered surveyors to understand and interpret company accounts
- For your own business accounts.
- For assessing the financial strength of contractors and those tendering for contracts.
What is the difference between Management Accounting and Financial Accounting?
Management Accounting
* Internal Use, for the management team
* Not required by law
* Example – profitability of staff / a project
* Can be tailored to show what you want to see
Financial Accounting
* Company Accounts
* Required by law
* Providing summary analysis and reporting of financial transactions.
* Statements are made public
What do you know about the company act
States reports that must be made public
Private company - at least one directors
Public company - at least two directors
What are credit checks, who with and what does it show?
Credit safe and Dunham Bradsheet
Shows turnover, debtors etc…
I look for very low risk (score of 71+)
