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(ASSESSORS) RICS VALUATION (Scotland)2024 > 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 internal 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 anticipated 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 company’s 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 liabilities by converting assets into cash.

Current assets/current liabilities

usually around 1.5

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11
Q

What are profitability ratios?

A

Measure the performance 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 financial 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 business accounts

-Assessing financial strength of contractors and tendering for contracts

  • Assessing competition
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14
Q

What is is the purpose of profit and loss accounts?

A
  • Monitor and measure profit-based performance
  • Compare against past performance 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

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 company’s sales, running costs and profit or loss over a financial period (usually a year)

They are used to show sales vs expense

They can also be used to identify non profitable work

19
Q

What is a balance sheet?

A

Shows the value of the company’s assets and liabilities 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 separate account owned by a 3rd party held on behalf of two parties, has defined contractual conditions for the release of funds. Can be used as a project bank account.

24
Q

What would you use company accounts for?

A

To assess the financial strength of the company

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
  • Credit safe subscription,
  • group, and company accounts,
  • calculate ratios
27
Q

Why would you not recommend the appointment 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 contractor’s insolvency

28
Q

What measures would you recommend 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 claims project bank account
29
Q

What is taxation?

A

Money owed to the HMRC based on a company’s profit

30
Q

What is revenue?

A

Income generated from sales of products or services

31
Q

What is capital expenditure?

A

Money spent on acquiring or maintaining fixed assets

32
Q

What is auditing?

A

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

33
Q

How do you ensure healthy cashflow?

A

Ensure cash coming in is greater than going out

34
Q

What is accounting?

A

Process of keeping financial accounts

35
Q

What is bankruptcy

A

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

36
Q

What is VAT?

A

Value added tax

37
Q

What is the standard rate of VAT?

A

20%

38
Q

When should a company be registered for VAT?

A

Taxable turnover greater than £85,000.00

(ASSESSORS) RICS VALUATION (Scotland)2024 (15 decks)

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