Accounting Principles Flashcards
Can you please name some of the mandatory account principles required in construction?
1) Balance sheets
2) Profit and loss statement
3) Cashflow forecast
What is a balance sheet and what purpose does it se-*9rve for a construction company?
A balance sheet is a snapshot of a company’s financial position at a point in time. It reports on a company’s assets, liabilities and ownership equities. This is particularly important in construction as costs are high with very tight margins, meaning a construction company would need assurance that there is enough assets and equity to cover the liability if project were underperforming.
What is a cash flow forecast, and when would it be used?
A forecast of a firms cash inflow and outflow over a period of time, usually 12 months. It can be used for the following purposes:
1) To obtain funding from external sources
2) To identify shortfalls in cashflow and plan strategy to improve cash position (payment terms etc)
3) As a KPI for the success of the business
4) Identify when cash position may be good, which provides an opportunity for growth
5) Can be used as guidance when preparing valuations
What is a profit and loss statement and why is it used in construction?
A document which determines the profitability of a company by subtracting expenses from the revenue generated over a period of time (usually 12 months). In construction we use sheets such as the CVR which tracks value against costs on a monthly basis and forms the overall business profit and loss statement.
What is a management account?
Accounts that are published for internal purposes and are therefore used to track success or prepare for funding from an external lender. They are not audited externally.
What is the alternative to management accounts, please explain what it is?
Company/financial accounts - PLC companies in the UK are obliged to issue these through companies house in line with the companies Act 2006.
Can you please tell me what your company reporting on companies house in the most recent financial year end?
Turnover - £1.7b
Profit/loss - Loss before tax of £203m
Net cash position - +£63m
