Accounting Principles And Procedures

Question 1

What is a “balance sheet”?

Answer 1

Overview of:
- Assets (stuff of value the company owns)
- Liabilities (debts or obligations you need to fulfil in future)
- Equity capital (money collected from owners/investors for stock)

Question 2

What is a “profit and loss statement/account”?

ICE time!

Answer 2

Financial statement summarising:
- Revenues
- Costs
- Expenses
over a specified time period (usually a year). You can calculate operating profit from it.

Question 3

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

Answer 3

Balance sheet shows financial position of a company on a specific date.
P&L account shows revenue and expenses over period of time (financial year).

Question 4

When would use you a “balance sheet” and “profit and loss account”?

Answer 4

When you wanted to understand the assests/liabilities at a particular date, use “balance sheet”.
When you want to know performance of a company over time, use a “P&L account”.

Question 5

How would you assess the financial standing of a contractor?

Answer 5

Check their records on Companies House.

Question 6

What are GAAP?

Answer 6

Generally Accepted Accounting Principles.

A collection of commonly-followed accounting rules/standards for financial reporting.

Question 7

What is “ratio analysis”?

Answer 7

A means of evaluating a company’s financial health.

Question 8

What are “statutory accounts”?

Answer 8

Account statements that MUST be submitted to HMRC. They contain:
- Balance sheet
- Profit and loss account
- Cashflow statement
- directors’ report

Question 9

What are “management accounts”?

Answer 9

Financial reports produced for business owners, generally monthly or quarterly, normally a Profit & Loss report and a Balance Sheet.

Question 10

What is the VAT threshold, the point where businesses must register for VAT?

Answer 10

£85,000 turnover in any 12 month period.

Question 11

What is required to be submitted annually to Companies House?

Answer 11

Theconfirmation statement.
A document that limited companies and LLPs must file, contains details of its directors and shareholders, LLP lists its members.

Question 12

Name three items that you would expect to find within a Balance Sheet?

Answer 12

• Current assets e.g. cash,
• Non-current assets e.g. buildings, equipment (inventory) Current liabilities e.g. supplier debts, bank overdraft Shareholder’s equity & Non-current liabilities e.g. financial debts of more than one year

Question 13

What is the difference between a Cashflow statement and a Balance Sheet?

Answer 13

Acash flow statement = Shows the liquidity of the company - how much cash has entered and exited a business over a given period of time.

Balance Sheet = A snapshot of a company’s finances at a given point in time, shows assets and liabilities.

Question 14

What is a balance sheet? What did you learn during your CPD on these?

Answer 14

A snapshot of a company’s finances at a given point in time. I learned the difference between a balance sheet and income statement; identify each person’s role in the balance sheet and the income statement; and analyse a balance sheet and an income statement using key indicators.

Question 15

How does a cash flow forecast differ from a profit and loss sheet?

Answer 15

Acash flow forecastis a plan that shows how much money a business expects to receive in, and pay out, over a given period of time.

Profit and loss or Income statement provides information about a company’s profitability, demonstrating the balance of income vs expenditure.

Question 16

Why is cash flow important?

Answer 16

Cash is important because it later becomes the payment for things that make your business run: expenses like stock or raw materials, employees, rent and other operating expenses. Naturally, positive cash flow is preferred. Positive cash flow means your business is running smoothly.

Question 17

What are liabilities?

Answer 17

Liabilities are the creditors’ claims on the resources of a company — what the company owes to banks, bondholders or trade creditors.

Question 18

What is owners equity?

Answer 18

Owners’ equity is the residual claim on those resources – the company’s “net worth”.

It is the difference (balancing figure) between assets and liabilities and includes accounts such as:

Question 19

Whats the difference between capital expenditure and operating expenses?

Answer 19

In property accounting, capital expenditures are those costs directly related to the improvement of the property. The operating expenses are those related to the maintenance of the property.

Question 20

What is NET income?

Answer 20

Once all business transactions have been recorded and classified, businesses will be interested in knowing the amount of money gained or lost after all costs and expenses have been deducted from the total sales.

The resulting figure receives the name of net income and it is also known as the ‘bottom line’.

Question 21

What is a balance sheet?

Answer 21

The balance sheet presents a company’s financial position at a particular point in time.

It includes a listing of a company’s assets and the claims on those assets (liabilities and equity claims).

Question 22

What is cash flow statement

Answer 22

The statement of cash flows provides information about the changes in cash and cash equivalents of an entity for a reporting period (net cash flow).

This statement shows separately changes from each business activity, therefore it is split into 3 as per the diagram here.

Question 23

What is included in a set of company accounts>?

Answer 23

1. Chairman’s Statement
2. Independent Auditor report
3. P&L
4. Balance Sheet
5. Corporate Governance Report
6. Remuneration Report
   Statutory information

Question 24

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

Answer 24

Balance sheet shows financial position of a company on a specific date. P&L account shows revenue and expenses over period of time (financial year).

Question 25

What are statutory accounts?

Answer 25

Account statements that MUST be submitted to HMRC. They contain:
* - Balance sheet
* - Profit and loss account
* - Cashflow statement
* - directors’ report

Question 26

The contents of a set of public limited company accounts include:

Answer 26

• Chairman’s statement
• Independent auditor’s report
• Income statement (profit and loss account) Statement of financial position (balance sheet)
• Corporate governance report
• Remuneration report
• Other statutory information

Question 27

Why is knowledge of accounting principles important for chartered surveyors?

Answer 27

To be able understand the financial health of a project to protect the Client’s Interests.

To able to understand the financial health of your company or organisation so that you can manage
it effectively.

To understand your own financial health

Question 28

What is the difference between Management Accounts and Company
Accounts?

Answer 28

Management accounting provides information to people within an organisation or for a project -
Confidential.

Company accounts are a legal requirement in most countries and provide information for people outside the company – Public.

Question 29

What is a profit and loss statement?

Answer 29

“A statement that shows income and expenditure for a project or company to show what profit or
loss is being made.”

Question 30

What is a cash flow statement?

Answer 30

“Essentially, the cash flow statement is concerned with the flow of cash in and cash out of the Business or project. As an analytical tool, the statement of cash flows is useful in determining the short-term viability of a company or project, particularly.”