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RICS APC 2023 > Accounting principles > Flashcards

Accounting principles Flashcards

1
Q

What are the key financial statements that companies need to provide?

A

-Profit and loss accounts
-Balance sheets
-Cash flow statements

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2
Q

What is the difference between management accounts and financial accounts?

A

-Management accounts are for the intenal use of the management team
-Financial accounts are the company accounts required by UK law

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3
Q

What is the difference between a profit and loss account and a balance sheet?

A
  • A profit and loss account shows the incomes and expenditures of a company and the resulting profit and loss
    -The balance sheet shows what a company owns (assets) and what it owes (liabilities) at a given point in time
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4
Q

What is a cashflow statement?

A

Summary of the actual or anticipate d ingoing and outgoing of cash in a firm over the accounting period- measures the short-term ability of a firm to pay off its bills

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5
Q

What are capital allowances?

A

Tax relief on certain items purchased for the business e.g. tools & equipment

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6
Q

What are sinking funds?

A

funds that are set aside for future expense or long term debt

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7
Q

What is insolvency?

A

An inability to pay debts where liabilities exceed assets

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8
Q

What is companies house?

A

An agency that incorporates and dissolves limited companies within the UK

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9
Q

What is the HMRC?

A

Her majesties revenue and customs

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10
Q

What are liquidity ratios?

A

Measure the ability of a company to pay off its current liabilites by converting assets in to cash.
Current assets/current liabilites
usually around 1.5

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11
Q

What are profitability ratios ?

A

Measure the perforamnce of a company in generating its profits
Trading profit margin ration=turnover-cost of sales
Low margins may be due to growth strategy, not always bad management

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12
Q

What are financieal gearing ratios?

A

Measure the financial structure of the company including solvency

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13
Q

Why do chartered quantity surveyors need to understand and be able to interpret company accounts?

A

-Aid in preparing own buisness accounts
-Assesing financial strenght of contractors and tendering for contracts
- Assesing competition

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14
Q

Whats is the purpose of profit and loss accounts?

A

-Monitor and measure profit based performance
-Compare against past perfromance and budgets
-For valuation purposes
-Assist in forecasting future performance

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15
Q

What is the difference between debtors and creditors?

A

Creditors are business entities that are owed money by another entity they have extended credit to
Debtors are business entities that owe money to another respective company

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16
Q

What are management accounts?

A

Accounts prepared by a company for internal management use
Accounts prepared for a lender to evaluate if you will be able to repay any funding
Not audited

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17
Q

What is a financial statement?

A

Forecasts of income and expenditure that can be used to identify shortfalls

18
Q

What is a profit and loss account?

A

They demonstrate a companies sales, running costs and profit or loss over a financial period (usually a year)
They are used to show sales vs expense
They can be used to show sales vs expense
They can also b eused to identify non profitable work

19
Q

What is a balance sheet?

A

Shows the value of the companies assests and liabilies and demonstrates the value of the business

20
Q

What is a cash flow forecast?

A

Summarises the amount of cash entering and leaving a company or project
Usually show an S curve on construction projects

21
Q

What is an S-Curve?

A

Refers to the shape of the expenditure profile when shown in graph form
Start of a project expenditure is low, middle of the project expenditure is high due to more expensive aspects e.g steelwork/M&E
S curve flattens as the project comes up to completion

22
Q

How can an S Curve be used by a surveyor?

A

Track and analyse a projects expenditure
Assess the financial strength of contractors

23
Q

What are escrow accounts?

A

A seperate account owned by a 3rd party held on behalf of two parties, has defined contractual conditions for the relwease of funds. Can be used as a project bank account.

24
Q

When have you used company accounts in your work?

A

To asses the financial strength of the supply chain

25
Q

How do you analyse a company’s accounts?

A

Calculating liquidity and profitability ratios

26
Q

How do you carry out a credit check?

A

Creditsafe subscription, group and company accounts, calculate ratios

27
Q

What are the signs of insolvency in company accounts or credit checks?

A

Low credit rating
A liquidity ratio below 0.75
low return on equity
heavily reliant on loans
ccjs
a falling cashflow statement

28
Q

Why would you not reccomend the apointment of a contractor with a low credit rating?

A

increased risk of the contractor not performing, contractor may not be able to deploy resources and materials, increased risk of contractors insolvency

29
Q

What measures would you reccomend if your client wanted to appoint a contractor with a low credit rating?

A

Explore the option of requesting a performance bond, review the tender submission to ensure it is not front loaded, when reviewing interim valuations, ensure they are not over claimes, project bank account

30
Q

What is taxation?

A

Money owed to the HMRC based on a companies profit

31
Q

What is revenue?

A

Income generated from sales of products or services

32
Q

What is capital expenditure?

A

Money spent on acquiring or maintaining fixed assets

33
Q

What is auditing?

A

Examining and verification of a companies financial records- ensure they are in line with accounting standards

34
Q

How do you ensure healthy cashflow?

A

Ensure cash coming in is greater than going out

35
Q

What is accounting?

A

Process of keeping financial accounts

36
Q

What is bankruptcy

A

Legal process where debts are unpaid and unable to be paid, a company may seek relief. Court ordered and remains on file for 10 years.

37
Q

What is the CIS?

A

Construction industry scheme- created by HMRC to minimisetax evasion as the contractors deduct tax from payments to subcontractors

38
Q

What is VAT?

A

Value added tax

39
Q

What is the standard rate of VAT?

A

20%

40
Q

When should a company be registered for VAT?

A

Taxable turnover greater than £85,000.00

41
Q

What is domestic reverse charge?

A

Implemented march 2021- The contractor accounts for the VAT rather than the sub-contractor

RICS APC 2023 (19 decks)

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