Accounting Principles and Procedures Flashcards
What is accounting?
Collecting, analysing and communicating economic information
What is the difference between Management and Company Accounts?
Management accounts are used internally to track finances whereas company accounts are financial accounts required by law.
Management account example – fee tracker
Financial account example – profit and loss statement
What is a balance sheet?
A snap shot of the accumulative wealth of a business at a given time
What is a profit and loss account?
Shows how much profit and or loss generated by a business in a given period. Usually provided monthly by accountants.
What does a profit and loss account include?
Total sales, less direct costs shows gross profit, less overheads and expenses gives profit/loss
What is a cashflow?
The total amount of money being transferred into and out of a business over a set period of time.
What legislation is there for how companies conduct their financial affairs?
The Companies Act 2006 – legal requirements with regards to what companies need to provide as part of an annual report e.g. director’s report, profit and loss account, balance sheet, cashflow statement and auditor’s report.
What is an annual report?
A summary of a company’s activities produced on a yearly basis that must be sent to all shareholders of a business and submitted to HMRC.
What do you look for when analysing consultant fee proposals?
- Total fee and how it was calculated
- Level of resources e.g. level of seniority, experience
- Fee breakdown
- T&Cs
- Scope of services
- Exclusions and assumptions
How are these fee proposals calculated?
Modus fees are either calculated on a percentage basis, based on the expected construction value, or calculated as a lump sum fee based on activity-based calculations for each service requested by the client
How do you review the financial viability of tenderers?
Review and analyse financial reports – level of profitability, liquidity, solvency. I would ask:
* What insurances do they have and levels of liability limits
* Check that they’ve met all obligations to pay creditors & staff in the past 12 months
* Do they have any claims pending against them over the last 3 years?
* Get their permission to ask their bank for a reference
* Due diligence – credit check
Profitability – Return of Total Assets (ROTA) = Net profit / Total Assets
Liquidity – Current ratio = Current Assets / Current Liabilities
What is an asset?
A resource the business owns that has current and future expected value
What is a claim?
An obligation to provide cash or other benefit to another party/business
What is a bad debt?
When a credit customer providing services to a client will not pay
What is meant by the terms nett and gross?
Gross is amount of money before deductions and nett is remaining money after all deductions have been made
