Accounting Principles Flashcards
1
Q
Relevance of Accountancy
A
- Understand own company performance as
- well as tendering contractors
2
Q
Assets & Liabilities
A
Owned & owe
Asset (owned)
- cash
- accounts receivable
- land
- property
- shares
- vehicles
- equipment
Liabilities (owed)
- debt
- loans
- accounts payable
- tax
- wages
3
Q
Fixed and Current Assets
A
- Fixed (physical) = Vehicles, office furniture
- Current (transactional) = Cash, accounts receivable, goods
4
Q
Balance sheet
A
- Snapshot of a company’s financial position in terms of what it owned and is owed
- (assets & liabilities)
5
Q
Profit & Loss
A
- Shows a business’s profitability over a year.
- Turnover-Costs (GP)-expenses-(EBITDA)- Earnings Before Interest Tax Depreciation and amortisation (NP)
6
Q
Insolvency
Types
A
- Company unable to pay debts.
- Company may appear profitable but cannot service it debts in the short term.
- Liquidation, CVA, Administration, Receivership
7
Q
Liquidation
A
- Company assets retrieved, and debtors are paid.
- Dissolved and wound up.
8
Q
Administration
A
- Keeps trading.
- Assets protected (owner can’t sell).
- Restructure to pay debtors.
9
Q
Compulsory Voluntary Arrangement (CVA)
A
- Financially strained but not insolvent.
- Payment structures to help pay debtors.
10
Q
Receivership
A
- Court/creditors appoint a receiver to secure assets and manage company to pay debtors.
- Assets returned after.
11
Q
Types of Insolvency
A
- Liquidation - Wound down
- Administration - Re-structure
- Compulsory Voluntary Arrangement - Need help to pay debtors
- Receivership - Court instructed to retrieve debt
12
Q
Contractor Risk Signs - accounts
Why an issue?
A
- Low credit rating,
- falling working capital (high nr. of contracts),
- highly geared,
Why an issue;
- Performance (too busy),
- limit on resources (min. cash),
- supply chain issues (slow/non-payment)
13
Q
Key Ratio Analysis
A
- Business performance metrics. PAG
- Profitability; Revenue less expenses.
- Asset; £150k (asset)/£100k (liability) =1.5 (below=risky above=stable).
- Gearing Ratio; Equity / Debt
14
Q
Credit Control Systems
A
- Protect business cashflow.
- Process:
- Credit check ok or risk?,
- limit e.g. £5k max,
- payment terms 21 days,
- auto invoice (not manual),
- failure to pay process
(letter, final warning, suspend, legal proceeding)
15
Q
Taxation
A
- Government imposed charges on citizens & companies to finance their expenditure.
- e.g. Income tax,
- corporation tax,
- national insurance,
- VAT.
