Accounting Principles and Procedures

Question 1

What is a balance sheet?

Answer 1

It is a snapshot of the financials at a point in time. It shows the company’s assets and liabilities which in turn can show the liquidity of the business.

B(AL)ANCE SHEET

Question 2

Why should you keep accounts as a business?

Answer 2

KEEP TRACK of money coming in and going out to ensure they remain solvent.
MANAGE PERFORMANCE profit and loss and company performance.
PLAN for the future and also highlight problem areas.
COMPLY - In accordance with Company’s Act 1985, companies must provide their year end accounts to Companies House.

Question 3

What is the Construction Industry Scheme?

Answer 3

HMRC Scheme to avoid tax evasion in the construction industry. The contactor takes tax from payments to subcontractors. They all need to be signed up to the scheme.

Question 4

What information would you check with regards to a contractor’s financials?

Answer 4

I would check their financial accounts, cash flow and profit and loss account on Companies House. The profit and loss account to check whether the business is running at a profit. I would also check their cash flow to establish whether the business is struggling. If more money is going out than coming in, there is concern that they are struggling. There are limitations as it is all the past track record and not entirely current. I would also check the past 3 years to show progression.
I would then undertake a credit check using Dunn and Bradstreet or Experian which gives the business a credit score detailing the risks.

Question 5

What information can you determine from a profit and loss account?

Answer 5

Whether the business is generating a profit from income, revenue and expenditure.

Question 6

Why is it important to have a cashflow forecast?

Answer 6

Cash flow is the way that money moves in and out of a business and its bank account. Helps to develop a business strategy to ensure the business is running solvent. It shows the money coming in and leaving a business over a period of time. The management of cash and cash flow is important as it can prevent a business from failing.

Question 7

What accounts information must a business submit yearly?

Answer 7

Cash Flow Statement, Balance Sheet and Profit and Loss Account.

Question 8

What is the difference between management accounts and business accounts?

Answer 8

Management accounts are used internally for the business. Business accounts are generally audited by a chartered accountant and filed yearly.

Question 9

What is Profit?

Answer 9

Turnover less expenditure.

Profit = Turnover - Expenditure

Turnover is the fee earned.

Question 10

How do you as a surveyor contribute to profit?

Answer 10

I am a technical staff member who earns a fee.

Question 11

What is the difference between gross and net profit?

Answer 11

Gross Profit = Turnover less direct costs.

Net profit = Gross Profit less overhead costs and tax.

Question 12

What is a profit and loss account?

Answer 12

A financial account over a period of time which shows turnover less direct costs. Synergy’s is April to April.

Question 13

What can you use financial accounts for?

Answer 13

Financial accounts denote the company’s integrity.

Question 14

What is a cash flow statement?

Answer 14

Financial statement showing a running balance of the money coming in and going out.

Question 15

What is a cash flow statement?

Answer 15

Financial statement showing a running balance of the money coming in and going out.

Question 16

What is a tangible asset and what is an intangible asset?

Answer 16

A tangible asset is something that is physical. Intangible is something that is there but can’t be seen

Question 17

What is a fixed asset?

Answer 17

Plant and equipment, offices/buildings, motor vehicles

Question 18

What is a current asset?

Answer 18

Stock and cash in bank.

Question 19

What is current liabilities?

Answer 19

Creditors – suppliers and consultants

Question 20

What is revenue expenditure?

Answer 20

Direct cost to the making of the turnover and delivery of the service. Cost incurred during normal business operations i.e. maintenance of assets, salaries and utility expenses.

Question 21

What is capital expenditure?

Answer 21

The cost of large items of equipment or vehicles or buildings. Cannot be deducted from your income as an expense and allow for capital allowances to be deducted.

Question 22

How do you mitigate risk as a business?

Answer 22

Keep healthy cash balances. Synergy has a Financial Partner. Look after all Technical Staff who earn the fee. Have a debt collector to ensure people pay within 45 days.

Question 23

What are management accounts?

Answer 23

They are a rolling forecast that are used internally to forecast incomings as well as reflect on past financials. Can be split into departments to micro manage the business.

Question 24

What are audited accounts?

Answer 24

Accounts which are audited by a chartered accountant, and these include you profit and loss account, balance sheet and cash flow statement.

Question 25

What KPI’s do Synergy use for financial accounts?

Answer 25

Profitability (Gross and Net Profit Margins), Turnover per head for each financial year, Debt Collection days

Question 26

What ratio analysis to Synergy use?

Answer 26

When reviewing the contractors accounts, we use Gearing (comparing debt to equity). The average gearing ratio in 2018 was 3.5:1. Liquidity ratios determine how quick the business could cover their debts by selling assets.

Question 27

How would you undertake the Analysis of Contractors Accounts?

Answer 27

Always request costs for the past 3 years and check most recent accounts (<1 year old). Request a reference from their bank and request current management accounts; Check the blurb at the top of the accounts as it may identify risks. On contractors accounts it will mention costs of sales, which are the labour, materials and transport. Total equity defines the strength of the business. Profit and loss reserves are paid in dividends to the directors of the company. It is important to compare the size of the project to the company’s turnover to determine the size of the job. We use Experian to determine a risk score and access their final accounts over the past three years. You should always check whether the increase in turnover matches the profitability.

Question 28

What would assumption would you make if the company’s accounts were not audited?

Answer 28

That they have not been checked and it is likely to be a small business.