Brainscape's Knowledge GenomeTM


Top Flashcards (Certified)
All Flashcards

APC Revision > Accounting Principles > Flashcards

Accounting Principles Flashcards

1
Q

Types of financial statements

A

Profit and loss
Balance sheet
Cash flow

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
2
Q

What does each financial statement represent?

A

Profit and loss - incomes and expenditure
Cash flow - summary of actual and anticipated ingoings and outgoings
- ability to pay bills
Balance sheet - owns i.e assets and owes i.e liabilities

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
3
Q

Identify keys terms

A

Capital allowance - tax relief of items purchased

Sinking fund - funds for future or long term debt

Insolvency - inability to pay debts meaning more liabilities than assets

Companies House - incorporates and dissolves limited companies

HMRC - His Majesty’s Revenue and Customs

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
4
Q

Describe a liquidity ratio

A

Ability to pay off current liabilities by converting assets to cash

Assets v liabilities

1.5 usual ratio - house builders often 1.3

0.75 - indicates insolvent

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
5
Q

What is a profitability ratio?

A

Measure in generating profit
Ratio = turnover - (loss of sales/turnover)
Low margin = Growth

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
6
Q

What is financial gearing ratio?

A

Indicator for suppliers of debt and equity
Measures insolvency
High = rely on borrowing
Interest payments reduce profit

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
7
Q

Why is it important to understand finances?

A

Prepare own accounts

Assess contractors

Assess competition

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
8
Q

What is the purpose of Profit and Loss?

A

Monitor and measure profit and loss
Compare previous performance and budget
Valuation purpose
Forecast future
Compare to competition
Taxation

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
9
Q

What are management accounts?

A

For internal use
For lenders to evaluate performance
Not audited

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
10
Q

What is a debtor?

A

An entity that owes money

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
11
Q

What is a creditor?

A

Owed money by other - i.e owed fee payment

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
12
Q

What is a financial statement?

A

Forecasts income and expenditure to analyse shortfalls and surpluses

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
13
Q

What is in a profit and loss account?

A

Sales, running costs, profit or loss
Sales v expense
Identity non-profitable work

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
14
Q

What is on a balance sheet?

A

Value of everything owned = assets, liabilities

Value of business

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
15
Q

What is in a cash flow forecast?

A

Cash in and out of the business

S curve - small outlay at the start
- i.e construction process

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
16
Q

How do surveyors use financial accounts?

A

Track, analyse, assess the performance
Identify financial strengths
Compare progress v predictions

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
17
Q

What is escrow accounts ?

A

Owned by third party, held one half of others

Conditions and mechanism to release funds

I.e Project bank account

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
18
Q

When have you reviewed accounts?

A

Instructing contractors

Application process for new tenants

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
19
Q

What did you do with accounts?

A

Viewed the ratios for liquidity, profitability, gearing

Calculated myself

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
20
Q

How do you credit check an applicant?

A

Credit safe site

Group and company accounts

Low = calculate ratios and pass on info

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
21
Q

Would you recommend an applicant with a low rating?

A

No - risk of performance
- risk of deployment of resources
- risk of insolvency

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
22
Q

What are the signs of insolvency?

A

Low rating
Liquidity below 0.75
Working capital ratio falling
Low return on equity
Large borrowing
Falling cash flow

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
23
Q

Advice to the client if they want a low rated contractor?

A

Performance bond if they fail to perform

Review tender

Review valuations

Set up project bank account

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
24
Q

What is equity?

A

Value an owner has in the business

Total liabilities from total assets on B/S

How well did you know this?
1
Not at all
2
3
4
5
Perfectly
25
What does the Companies Act 2006 stipulate?
All private limited companies and PLCs must file annual accounts on Companies House
26
What is a hurdle rate?
Minimum rate of return required on an investment
27
What are the UK quarter days?
25 March 24 June 29 Sept, 25 Dec
28
What is VAT?
Value added tax Charged on top of goods and services Some goods exempt - Royal Mail postage costs Installation of a/c units = 0% since 1 April 22
29
What are liabilities?
Things people/businesses owe Mortgage, car payments, loans
30
What are assets?
Resources businesses own or control Car fleet, buildings
31
How to calculate Net worth?
Assets - liabilities = net worth
32
What is insolvency?
The inability to pay money owed on time
33
What are the types of insolvency?
Administration = court manage company Liquidation = company assets sold to pay debts Receivership = creditors appt receiver over the insolvent firms asssts Company Voluntary agreement = agreement between company and creditors
34
What if a contractor goes bust?
Insure the site Track materials Withhold payment Record time spent Record value of works to date
35
What is the order of money after liquidation?
Fixed charge holders = bank Liquidator fees and expenses Preferential creditors = pensions, employees Floating charge holders Unsecured creditors = client
36
What is financial accounts?
Used externally for auditing Required by law (companies house)
37
Types of Ratio analysis
Gross profit Net profit Capital expenditure Revenue expenditure Gearing Liquidity
38
Types of tax
Vat Stamp duty Corporation Land Income
39
What are the generally accepted accounting principles?
Standards of details, complexities of legal accounting
40
What are management accounts?
Accounts shed light of business health and operational efficiency, not just numbers but holistic view
41
When should management accounts be prepared?
Monthly, quarterly - help to act swiftly to opportunities or threats
42
What are annual accounts for a private limited company?
Summary of financial activity of 12 month period. Prepared for HMRC and companies house. Incl balance sheet, profit and loss statement and cash flow statement
43
What is a balance sheet?
Statement giving insight to assets, liabilities and shareholders equity at a point in time. Owned v owed. Business health at a snapshot in time. Assets and liabilities shown.
44
On a balance sheet, what is an asset?
Owned or benefit from - fixed (long term = land, property), current (short term = petty cash, cash in the bank)
45
On a balance sheet, what is a liability?
Obligation for debt arising that needs to be repaid. Long term = money not due to be repaid in next year. Current = repaid in 1 year
46
What is a profit and loss statement?
Records performance over time. Revenues v expenses throughout year
47
What is a cash flow statement?
Cash movements in and out over the financial year. Money in and out during period of time
48
When is a statutory financial audit required?
Annual, independent inspection required by law unless exempt if below threshold. Legal requirement to be audited. Ensure accounts are correctly, prepared, accurate and in line with standards. Independent auditor and specialist.
49
Explain tax depreciation?
Where declining value of an asset is offset against a companies taxable profit Recorded as an expensive in order to reduce the amount of taxable income Applied to plant, tools, vehicles, computers, furniture and buildings
50
What are overheads?
Operating cost of the business that are incurred on an ongoing basis Fixed or variable Fixed - e.g rent, building insurance Variable - e.g utility charges
51
What’s is an escrow account?
Contractual agreements used as financial instruments within a transaction Asset/currency being transferred is held by intermediary third party Currency being exchanged is held by third party until each party meets contractual obligations allowing money to be transferred Mortgage lenders when completion buying/selling of real estate
52
What are Liquidity ratios?
Ability to pay debt obligations and assess its margin of safety by looking at e.g cash v short term debt s
53
Profitability ratios?
Ability to generate profits from sales operations and shareholding equity. Indicates how efficiently the company is generating profit
54
Gearing ratios?
Capital v debt. Measure companies leverage and sets out proportion of the firms activities are funded by shareholders v creditor funds
55
Why does a business keep company accounts?
Record and measure profitability Tax calculation Legislation requires accurate records Business growth identifies profitable operations
56
What is financial leverage?
Borrowed funds in form of debt Enhance business operations and increase profitability
57
What a capital allowances?
Allow tax payers to gain tax relief by using their expenditure to be deducted from their taxable income The expenditure used to lower taxpayer income is only allowed within certain categories: plant and machinery, integral parts of structure and buildings (lifts), research and development costs, patents
58
Current asset vs fixed assets
Current = converted to cash within one year, allow day to day operation of the business. E.g money owed for products or services Fixed = cannot be converted within one year. Owns for long term e.g vehicles, machinery, land
59
Profit and loss accounts v balance sheet
P&L = income and expenditure B/s = assets and liabilities and given point in time
60
Key financial statements?
Profit and loss Cash flow Balance sheet
61
What is a cash flow statement?
Actual and anticipated in/outgoings of cash over a period. Operating, investing and financing activities Measure short term ability to pay debts
62
Why understand accounts?
Own accounts Contractors Profitability and sustainability
63
Purpose of profit and loss?
Monitor and measure p/l Compare performance vs past/competition Forecast future Calculate tax
64
Debtors v creditors
Creditor - coop owes another firm Debtor - firm owes coop
65
What are financial statements?
Forecast of income and expenditure Analytical tool
66
What are profit and loss accounts?
Sales and costs over a period of Sales v expenses
67
What are balance sheets?
Shows value of everything the company owns, owes, and is owed Value at given points Summaries assets and liabilities
68
Signs of insolvency?
Low credit rating Ration below 0.75 Falling working capital
69
How long to keep accounting records?
Private - 3 years Public - 6 years
70
What is IFRS?
International Financial Reporting Standards Common rules so statements are consistent, transparent and comparable worldwide
71
UK Standards?
UK GAAP - generally accepted accounting practice in the UK
72
Financial audit exemptions?
Small/micro businesses. Qualify: turnover less than 10.2m B/S not more than 5.1m Average number of employees not more than 50
73
When do you use accounting principles?
Review applications Service charge year end and budgets
74
What act governs the production of accounts?
Companies Act 2006
75
What is the role for an auditor?
Independent party confirming financial accounts are fair and true
76
What is insolvency?
Inability to pay debts due to
77
What is bankruptcy?
Legal declaration of inability or impairment of ability to pay creditors
78
What are statutory accounts?
Financial records prepared at the end of your company’s financial year.
79
Who must receive copies of statutory accounts?
All shareholders People who can go to company’s general meetings Companies House HMRC
80
What are included in statutory accounts?
Balance sheet Profit and loss accounts Notes about accounts Directors report Auditor report depending on company size
81
What standards must statutory accounts meet?
Either: International Financial Reporting Standards New UK Generally Accepted Accounting Practice (GAAP)

APC Revision (17 decks)

Brainscape helps you reach your goals faster, through stronger study habits.
© 2025 Bold Learning Solutions. Terms and Conditions