Accounting Principles and Procedures

Question 1

What are the key financial statements that all companies must provide? / What are company accounts?

Answer 1

Company accounts are made up of the following key financial statements: profit and loss account, balance sheet and cash flow statement

Question 2

What is the difference between management and financial accounts?

Answer 2

Management accounts are for internal use of the management team. Financial accounts are company accounts required by law.

Question 3

What is the difference between a profit and loss account and a balance sheet?

Answer 3

Profit and loss account shows the incomes and expenditures of a company and the resulting profit and loss.
The balance sheet lists company assets and liabilities at a given point in time.

Question 4

What is a cashflow statement?

Answer 4

Summary of actual or anticipated ingoing and outgoing cash over the accounting period, which measures the short term ability of a firm to pay its bills.
Broken down into operating, investing and financing activities.

Question 5

Why do chartered quantity surveyors need to understand and be able to interpret company accounts?

Answer 5

For their own business accounts, to measure financial strength of contractors and to assess competition.

Question 6

What is the purpose of a P & L?

Answer 6

1. To monitor and measure profit or loss as problems can arise if information is inaccurate.
2. Can be used to monitor performance with previous periods or against competitors.
3. To assist forecasting future period performance
4. Calculating tax

Question 7

What are management accounts?

Answer 7

Accounts prepared internally for management use or for a lender to evaluate funding. Not audited externally.

Question 8

Financial Statements

Answer 8

are forecasts of revenue and expenditure. Can be used as an analytical tool to ID shortfalls and surpluses

Question 9

Profit and loss account

Answer 9

shows sales, running costs and P/L over the financial year

Question 10

Balance sheet

Answer 10

Shows the value of company owned assets, amounts owed and liabilities.

Question 11

Cash flow

Answer 11

summarises amount of cash or equivalents entering and leaving the company.