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RICS APC Building Surveying - Mandatory Competencies > Accounting Principles and Procedures > Flashcards

Accounting Principles and Procedures Flashcards

1
Q

What is a Profit and Loss statement?

A

Summarises the revenues, costs, and expenses incurred during a specified period.

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2
Q

What is taxation?

A

The amount of money or % that is owed to HMRC based on the company profit.

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3
Q

What is revenue?

A

Income generated by the sales of the product or services.

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4
Q

What is capital expenditure?

A

Money spent by a business or organisation on acquiring or maintaining fixed assets such as land, buildings and equipment.

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5
Q

What is auditing?

A

Term used to describe the examination and verification of a company’s financial records.

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6
Q

What is a ratio analysis?

A

Method of gaining insight into a company’s liquidity, efficiency and profitability by studying its financial statements:

  • Liquidity Ratios - Measure a company’s ability to pay off its short-term debts.
  • Solvency Ratios - Compare a company’s debt levels with its assets, equity, and earnings.
  • Profitability Ratios - These ratios convey how well a company can generate profits from its operations.
  • Efficiency Ratios - Also called activity ratios, efficiency ratios evaluate how efficiently a company uses its assets to generate sales and maximize profits.
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7
Q

What is credit control?

A

System used by businesses and central banks to make sure that credit is given only to borrowers who are likely to be able to repay it.

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8
Q

What is profitability?

A

Measure of an organisation’s profit relative to its expenses.

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9
Q

What is insolvency?

A

When a business can no longer meet your financial obligations, ie not enough money coming in to match money going out.

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10
Q

What is VAT?

A

Value Added Tax

Some things are exempt from VAT, such as postage stamps, financial and property transactions.

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11
Q

What is a balance sheet?

A
  • A financial statement that contains details of a company’s assets or liabilities at a specific point in time.
  • It is one of the three core financial statements (income statement and cash flow statement being the other two) used for evaluating the performance of a business.
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12
Q

Where might you find information on a company assets?

A

On a balance sheet.

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13
Q

What does a balance sheet tell you?

A

It tells you how much the company owns (assets) and owes (liabilities).

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14
Q

What is a cashflow statement?

A

A cash flow statement shows which parts of the business generated cash and which parts spent cash during a given period of time. It helps show if a business has any trouble meeting its expenses.

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15
Q

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

A

The Profit and Loss account is the statement of income and expenses which shows the net profit and loss for the particular period.

Balance sheet is the statement of assets, liabilities and capital which showing the actual financial position of an entity at a certain point in time.

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16
Q

What are management accounts?

A

Management accounts are prepared for internal use to:

  • Record;
  • Plan;
  • And Control a company’s activities and help with decision making processes such as:
  • Purchasing new assets
  • Employing staff
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17
Q

What are company accounts?

A

Company accounts are documents prepared at the end of a financial year which show how a company has performed over the accounting period. All limited companies must deliver accounts to Companies House. It does not matter whether you’ve been successful, breaking even, not trading, or dormant.

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18
Q

When should a company be registered for VAT?

A

If the company a VAT taxable turnover to be greater than £85,000 in the last 12 months or in the proceeding 30 day period.

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19
Q

What are the different VAT rates?

A

Standard rate = 20% (Most goods & Services)
Reduced rate = 5% (Children’s car seat, home energy)
Zero rate = 0% (Most foods, children’s clothes)

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20
Q

Can you give me some examples of reduced rate VAT items?

A
  • As of April 2022, Energy Efficiency Systems such as PV’s, ASP, GSHP & Insulation
  • Renovating or altering an empty house or flat reduced rate
  • Supplying and installing certain mobility aids for elderly people reduced rate
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21
Q

What is Domestic Reverse Charge?

A
  • A VAT procedure that was implemented in the UK on March 1st 2021 for construction services.
  • Under the Domestic Reverse Charge procedure, the buyer (contractor) accounts for the VAT rather than the supplier (subcontractor). this is try and account for missing VAT payments
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22
Q

Who does Domestic Reverse Charge apply to?

A

Main Contractors and Subcontractors

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23
Q

What is accounting?

A

It is the process of keeping financial accounts of something.

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24
Q

How do you deliver healthy cashflow?

A
  • Ensure cash coming in is greater than that going out
  • Working within my competence
  • Financial forecasting
  • Good client care
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25
Q

What does a Dun and Bradstreet report show?

A
  • It compiles business information to measure the creditworthiness of a company.

-They are the business equivalent of a credit report check.

  • It will colour code the companies financial status from green, red or orange/yellow to show their risk.
26
Q

What are the limitations of a Dun and Bradstreet Report?

A

It is limited only to the latest submitted documents on companies house.

27
Q

How are fee proposals prepared?

A

A fee proposal is prepared using an estimate of the time required to carry out a job multiplied by the cost of your hire on an hourly rate. A percentage will then be added for company overheads.

28
Q

What is goodwill?

A

An intangible asset that arises when a buyer acquires an existing business. It represents assets that are not separately identifiable.

29
Q

What is bankruptcy?

A

The legal process where people or companies who cannot repay debts may seek relief from the government of their debt. It is court ordered. It stays on your financial record for up to 10 years

30
Q

What is receivership?

A

The process in which a ‘receiver’ is appointed by a creditor to liquidate company assets to allow creditors to recoup their money.

31
Q

What is retention and why do we keep this?

A

Retention is the withholding of a percentage of a contract sum to ensure the contractor properly completes the activities required within the rectification period.

32
Q

What is meant by the terms Gross and Net?

A
  • Gross is the total salary
  • Net is salary minus tax and all other deductions
33
Q

What is meant by depreciation in relation to an asset?

A

Depreciation is the systematic reduction in the recorded cost of a fixed asset. Examples of fixed assets that can be depreciated are furniture and IT equipment.

34
Q

Why do chartered surveyors in your pathway need to understand and be able to interpret company accounts?

A
  • For assessing the financial strength of contractors and those tendering for contracts
  • For assessing competition
  • To assist with business operations
  • When setting up a new firm
35
Q

What is insider trading?

A

The trading of a public company’s stock or other securities (such as bonds or stock options) by individuals with access to non-public information about the company.

36
Q

What is the Construction Industry Scheme (CIS)?

A
  • A scheme created by HM Revenue & Customs (HMRC) for tax from contractors and subcontractors.
  • Designed to minimise tax evasion within the construction industry.
  • Contractors deduct tax from payments to subcontractors.
  • All contractors and subcontractors must register with the scheme before work starts.
37
Q

What happens if a company’s liabilities are greater than its assets?

A

There is a likelihood the company will go into administration.

38
Q

What does the term liabilities mean to you?

A

Any outstanding costs which are yet to be paid.

39
Q

What does the term assets mean to you?

A

Anything that can be deemed to have a value attached to it.

40
Q

What is the difference between liquidation and administration?

A

Liquidation - voluntary, struck the companies house register and the company uses it’s assets to pay off it debt. The liquidator gets paid first.

Administration - a process which ultimately looks to save a company through a process of financial and operational restructuring. It can help save a company, protect employees, and mitigate creditor losses.

41
Q

What is Revenue Expenditure?

A

Revenue expenditure is generally spoken to in relation to fixed assets as it records the expenses which have occurred in connection to a fixed asset.

For example, if you have a piece of equipment that requires monthly maintenance then the expense will be termed under revenue expenditure

42
Q

What is Capital Expenditure?

A

The cost of purchasing or upgrading an existing asset, the cost of which are spread over the useful life of the asset, and shown on the balance sheet.

43
Q

What procedures can you implement to improve Cash Flow?

A
  • Negotiate shorter payment terms with clients
  • Negotiate longer payment terms with suppliers and sub-contractors.
44
Q

What are the signs of insolvency?

A
  • Overvaluing Interim Valuations
  • Front Loading
  • Dissatisfied workforce
  • Asking for upfront payment
  • Contractual Approach
45
Q

Who is employed when a company becomes insolvent?

A
  • Administrator, who will try to keep the company going
  • Liquidator, who will wind up the company and sell the assets
46
Q

What options are available to a company that has gone insolvent?

A
  • Administration.- Company Voluntary Agreement
  • Compulsory Liquidations
47
Q

What financial checks may you undertake on a company before entering into a contract with them?

A
  • Check their published accounts on companies house
  • Check their credit ratings
  • Ask for their order book
  • Check references from previous clients
48
Q

What do companies need to provide every year in accordance with the Companies Act 2006?

A

The Act requires directors to ensure to prepare and file the annual accounts and it gives a true and fair view.

49
Q

What Is GAAP?

A

Generally Accepted Accounting Principles

  • The overall body of regulation establishing how company accounts must be prepared in the United Kingdom.
  • Company accounts must also be prepared in accordance with applicable company law (for UK companies, the Companies Act 2006
50
Q

What is the limitations act?

A

The Limitation Act 1980

  • Sets out the rules on how long someone has to take action through the courts against another party. If the limitation period has expired then a claim is statute-barred and the person who wants to make the claim may be prevented from doing so.
51
Q

Is there any RICS document relating to cash flow?

A

RICS guidance note - 2012 - Cash flow forecasting - First edition

52
Q

Can you expand on the contents of this (RICS guidance note - 2012 - Cash flow forecasting - First edition)?

A
  • Summarises what cash flow forecasting is
  • How to produce a useful forecast
  • How to then use the forecast to assess progress on site as well as other issue
  • Assist both employers and contractors to analyse actual expenditure against forecast expenditure.
53
Q

What is Misappropriation of company funds?

A

Misappropriation of company funds is considered fraud and may be an internal matter involving employees or funds being diverted to another company – or might involve a criminal gang infiltrating a company.

In cases involving misappropriation of company funds, it is possible to issue a claim against the perpetrator – whether a company or an individual – to recover monies diverted or stolen and claim damages.

54
Q

How do you calculate utilisation?

A

The basic formula is pretty simple: it’s the number of billable hours divided by the total number of available hours (x 100).

Example: if an employee billed for 32 hours from a 40-hour week, they would have a utilisation rate of 80%

55
Q

What is a cash flow forecast?

A

Cash flow forecasting, also known as cash forecasting, is a way of estimating the flow of cash coming in and out of your business, across all areas, over a given period of time.

A short-term cash forecast may cover the next 30 days and can be used to identify any funding needs or excess cash in the immediate term.

56
Q

Give me some examples of the subject areas of the RICS Professional Statement on Conflicts of Interest?

A
  • Record Keeping
  • Party conflicts
  • Informed consent
  • Information barriers
  • Own interest conflicts
  • Confidential information
57
Q

What is the difference between a Sole Trader, Partnership, Limited, and a LLP?

A
  • Sole Trader: A person who is the exclusive owner of a business, entitled to keep all profits after tax has been paid but liable for all losses (unlimited liability).
  • Partnership: A business organisation in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business.
  • Limited: In a limited company, the shareholders’ liability is limited to the capital they originally invested. If such company becomes insolvent, the shareholders personal assets remain protected. Shares in a private limited company are not offered to the general public (distinguishing it from a public limited company - plc.)
  • Limited Liability Partnership (LLP)A limited liability partnership (LLP) is a partnership in which some or all partners have limited liabilities. It therefore exhibits elements of partnerships and corporations. In an LLP, one partner is not responsible or liable for another partner’s misconduct or negligence.
58
Q

What options are available to a company that has gone insolvent?

A
  • Administration
  • Company Voluntary Agreement
  • Compulsory Liquidations.
59
Q

What current challenges is Covid and/or Brexit bringing to Accounting Principles?

A

The initial lack of face to face interaction make general business and day-to-day on-going challenging. As demand and increased for labour and materials this is having an impact on the suitability of works across the sector.

60
Q

What is the legislation that applied to all UK accounting businesses?

A

The Companies Act 2006

61
Q

What is the role of the auditor?

A

The auditor’s objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes the auditor’s opinion.

RICS APC Building Surveying - Mandatory Competencies (13 decks)

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