Accounting Principles Flashcards
What’s VAT
Value added tax
What’s corporation tax
Tax paid by uk limited companies based on annual profit
What’s a financial audit
Describes the examination and verification of a companies financial records
What’s turnover
Income or revenue that a company receives from its business activity like goods or services to customers
What are business overheads
Costs of operating a business
- rent - salary’s
Why do business keep company accounts
Tax purposes by law
Demonstrate company’s financial standing
Ensure cash flow and probability are managed
What are management accounts
Financial reports produced for owners and managers summarising current financial health
What’s an escrow account
Legal holding bank account for monies that can’t be released until predetermined conditions are met
What’s a project bank account
Ring fenced accounts for projects that pay the supply chain
Three types of accounting ratios
Liquidity - ability to turn assists into cash to pay debts
Profitability ratio - ability ti generate earnings relative to its revenue, operating costs, balance sheet and equity over time
Gearing ratio - proportion of borrowed funds to its equity
What’s financial leverage
Use of borrowed moeny to finance the purchase of assets with the expection that income will exceed cost of borrowing
What’s capital allowances
Allows taxpayers to get tax relief on there tangible capital expenditure that’s deducted from there annual taxable income
Core financial statements a company might produce
- profit and loss account
- balance sheet
- cash flow forecast
Hats the difference between gross and net
Gross is total before reductions
Net is total after adjustments
What’s shareholder equity
The value that an owner has in a business
What’s UK GAAP
Regulatory body that establishes how accounts and financial reports should be prepared in the UK
What’s expenditure
Represents a payment to purchase goods or services
What’s capital expenditure
CAPEX - spending to improve an asset like equipment
What’s operating expenditure
OPEX - costs incurred in the day to day running of a business like buying spare parts for example
What’s a balance sheet
A Snapshot of a company’s financial position at a given point in time. Shows financial health
What’s assets
Buildings land equipment
What are liabilities
A loan or a debt
What are current assets / liquid asset
A short term asset a company intends to turn to cash within a financial year
What’s a fixed asset
An asset for long term use like equipment
What’s a cash flow forecast
Shows how much moeny you expect your business to receive and pay over a set period
What’s a profit and loss account
Shows a company’s revenue and expenses over a particular period, typically either one month or across a year
What’s the difference between a balance sheet and a profit and loss account
Balance sheet is a snapshot at a given time showing financial position
Profit and loss account shows the profit or loss over a determined period
What’s insolvency
The inability to pay off debts or creditors
What’s are the signs of insolvency on a construction project
Slowing down of works
Supples or material drying up
Increase in defective work
Changes in management
Inflated payment requests
Subcontractors complaints
What’s would you do if faced with contractor insolvency
- inform all parties
- inform bondsman
- stop making payments and receive legal advice
- take ownership of paid materials
- terminate building contact and appoint a new contractor
What’s liquidation
A formal process which closes a limited company with all assets being sold before the company is struck off
What’s the difference between liquidation and administration
Liquidation - shutting down and selling off assets to pay off creditors
Administration - an administrator is appointed to manage the company’s affairs on behalf of the creditors
What’s bankruptcy
Deals with debts they cannot pay. Assets are shared among people they owe moeny to.
