Accounting Principles

Question 1

What are the key financial statements that companies provide

Answer 1

• Profit and loss accounts
• Balance sheets
• Cashflow statements

Question 2

What is the difference between profit and loss accounts and balance sheets

Answer 2

• 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 (it’s assets) and what it owes (it’s liabilities) at a given point in time

Question 3

What is a cashflow statement?

Answer 3

• It is a summary of the actual or anticipated ingoing and outgoing of cash in a firm over an accounting period
• It measures the short term ability of a firm to pay off it’s debts

Question 4

What is the difference between management and financial accounts?

Answer 4

• Management accounts are used for internal use for the management team
• Financial accounts are company accounts required by law

Question 5

What are capital allowances?

Answer 5

Tax relief on certain items purchased for a business

Question 6

What is insolvency?

Answer 6

An inability to pay debts, where liabilities exceed assets

Question 7

Why should chartered surveyors understand company accounts?

Answer 7

• To aid preparing their own business accounts
• For assessing the financial strength of Subcontractors tendering work
• For assessing competition

Question 8

What is a financial statement?

Answer 8

• Includes profit and loss account, balance sheet, cashflow statement
• Used as an analytical tool to evaluate a company’s financial health and earning potential

Question 9

What is a cashflow forecast?

Answer 9

• A cashflow forecast summarises the amount of cash predicted to be spent over a specific period

Question 10

How do you carry out a credit check?

Answer 10

I carry out a Dun & Bradstreet credit check which provides a failure score and delinquency score, which highlights if the business is under financial stress

Question 11

Why would you not recommend the appointment of a Contractor with a low credit rating?

Answer 11

• There may be an increased risk of the Contractor not performing satisfactorily
• It could present a risk of the Contractor failing to deploy sufficient resources to the project
• It could increase the risk of the Contractors insolvency

Question 12

What is UK GAAP?

Answer 12

The Generally Accepted Accounting Principles is a body of regulation establishing how companies provide their accounts

Question 13

What is IFRS?

Answer 13

International Financial Reporting Standards are a set of accounting principles for financial statements of public companies

Question 14

What is the difference between GAAP and IFRS

Answer 14

GAAP is rules based whilst IFRS is principles based

Question 15

What is IFRS15?

Answer 15

A reporting standard which outlines the principles for recognising revenue