Accounting principles

Question 1

What is a balance sheet?

Answer 1

Shows a company’s financial status - what is owned and owed.
[Bank statement]

Question 2

What is a cash flow statement?

Answer 2

Shows the money going in and out of a business.

Question 3

It’s been brought to your attention that funds are missing from the client monies account. Please tell us the process you would follow.

Answer 3

Reconciliation issue - Go through my records to check transaction amounts, dates, recipient.

Question 4

Where does equity sit on a balance sheet?

Answer 4

• After liabilities (what company owes).
• Shows value after liabilities are subtracted from assets.
  [ALE: assets - liabilities = equity]
  [Equity: net worth]

Question 5

What is the impact of International Financial Reporting Standards (IFRS) on your role?

Answer 5

• If I was CA on a project I’d undertake a valuation so the contractor knew how much revenue they made which would assist in their accurate financial reporting.

[Accurate progress reporting helps revenue recognition.]

[- Financial reporting framework.
- Advises on what are CapEx versus operating costs.
- PLCs must follow this when preparing company accounts.]

Question 6

What is a sinking fund?

Answer 6

Money collected from property owners to pay for future repairs and maintenance.
[Usually part of the service charge]

Question 7

Tell me what insolvency is.
How does it occur?

Answer 7

• When a business [or individual] can’t pay their debts.
• Not paying bill when they’re due, not paying taxes.

Question 8

How can cash flow be used?

Answer 8

• Interim Payments to contractors.
• Ensures contractors don’t have cash flow issues.

Question 9

What is the difference between a profit and loss statement and a balanace sheet?

Answer 9

• P&L: profit over time.
• Balance sheet: financial status at a point in time.
• P&L: asesses performance [shows net profit or loss made].
• Used to calculate a firm’s profit margin.
• Balance sheet: shows a firm’s financial position.
  [ALE: assets - liabilities = equity]

Question 10

What are examples of company overheads?

Answer 10

• Office rent.
• Computers, printers etc.

[Costs associated with running the business which aren’t directly tied to a project]

Question 11

What is the difference between budgeting and financial forecasting?

Answer 11

• Budgeting: Plan for how money will be spent.
• Forecast: What you think will happen in the future.