Accounting principles and procedures Flashcards
What did you learn from RICS Cashflow forecasting?
- importance of cashflow in a business,
- ways to mitigate negative cashflow (i.e. regular payment mechanisms, don’t own too many assets)
- how to present cashflow forecasts and possible reasons why you might have a variances in your cashflow reporting.
What is capital expenditure?
- CAPEX
- Capital expenditures spend to acquire or improve an asset such as equipment or buildings
What is liquidation?
It is the formal process which brings the business to a closure by selling all its assets for the benefit of outstanding creditors
What is in the bottom of profit and loss?
a company’s income after all expenses have been deducted from revenues so their net profit/earnings
Cashflow or profit Loss?
- PS shows how much money are left after expenses are paid out. However, Cashflow shows the movement of money in and out of a company.
- The key difference between cash flow and profit is that while profit indicates the amount of money left over after all expenses have been paid, cash flow indicates the net flow of cash into and out of a business.
- It’s possible for a company to be both profitable and have a negative cash flow hindering its ability to pay its expenses, expand, and grow.
- Similarly, it’s possible for a company with positive cash flow and increasing sales to fail to make a profit, as is the case with many startups and scaling businesses.
How do you check your subcontractor’s financial status?
- Credit ratings
- If you have access to the records, you could check balance sheets, profit and loss statement and cashflow position
- D&B Rating is an indicator that assesses the creditworthiness of a company based on the financial strength of the business, payment behaviour, age of the company, company size and other important factors
What is insolvency?
It is the inability of a business to pay off its debts or creditors
What is bankruptcy
- It relates to an individual not a company
- Assets are shared between creditors
- Allows the individual to make a fresh start from debt
What are the three primary types of financial accounts?
- Balance Sheet
- Profit and Loss Account
- Cash flow statement
Why have Variances on cashflow
(a) site conditions, and
(b) adverse weather
(c) re-sequencing of works (perhaps due to procurement of sub-contractors)
(d) materials being stored off site (and not claimed for)
(e) project progressing slower than anticipated
(f) materials not being delivered on time, and
(g) cash flow not being accurate in the first place.
Key differences between Balance sheet and Profit and Loss account.
- BS measures assets and liabilities, PL measures revenue and expenses[PK1]
- BS is only at the end of the year, PL is periodic
- BS reveals the entity’s financial position, PLoss account discloses the entity’s financial performance, i.e. profit earned or loss suffered by the business for the accounting period
What is a balance sheet?
It is a document that reprehension the companies fincances at a specific time of what it owns and what owes (assets and liabilities)
Difference between administration and liquidation?
Administration you got an administrator which handles the company’s affair behalf of the creditors
Liquidation involves the shutting down of company and everything is sold to creditors
What is profit and loss?
Profit and Loss Account also known as an income statement or statement of revenue and expenses.
What is Operation expenditure?
- OPEX are the costs a company incurs for running its day-to-day operations such as rent , Wages and salaries
