Accounting principles and procedures Flashcards
What is IFRS ?
International Financial Reporting Standards
Why are IFRS’ important ?
IFRS promotes transparency, comparability, and consistency in financial reporting on a global scale, contributing to a more efficient and interconnected international financial system.
What is a balance sheet ?
is a financial statement that provides a snapshot of a company’s assets, liabilities, and shareholders’ equity at a specific point in time
What are profit and loss statements?
provide a summary of a company’s revenues, costs, and expenses over a specific period, indicating its profitability or losses.
What is a liquidity ratio?
measures a company’s ability to meet its short-term financial obligations by assessing the availability of liquid assets relative to its current liabilities.
Why do auditors prioritize compliance over bookkeeping?
to ensure adherence to regulatory standards, legal requirements, and ethical practices, ultimately safeguarding the accuracy and reliability of financial information.
What are the potential impacts of a company’s insolvency on a construction project?
include delays, cost overruns, and disruptions due to the financial instability of the contracting party.
What is the importance of reviewing financial information?
in gaining insights into an organization’s fiscal health, making informed decisions, and ensuring transparency and accountability.
What is a PQQ process ?
process is a preliminary evaluation to assess and shortlist contractors based on their capabilities, experience, and financial stability before inviting them to tender for a project.
what does PQQ stand for ?
PQQ (Pre-Qualification Questionnaire)
What is a Dunn & Bradstreet check?
is a business credit report that provides information on a company’s creditworthiness, financial performance, and other relevant business details.
What is Vat ?
Is a consumption tax placed on a product whenever value is added at each stage of the supply chain from production to the point of sale
What does VAT stand for ?
Value Added Tax
What is corporation tax
Paid by businesses in the UK.
How is corporation tax calculated ?
On a businesses annual profit in a similar way to income tax for individuals
What is an audit
A process used to check a person or companies compliance with policy procedures and compliance with regulation
Why are audits performed ?
To ascertain that validity and reliability of information; also to provide an assessment of a systems internal control
What is turnover ?
Income or revenue that a company receives from its normal business activities. Usually from the sale of goods or a service to a customer
What are management accounts
Accounts prepared by a company for internal management use, or accounts prepared for a lender such as a bank to evaluate how the business will replay funding
Are management accounts audited externally ?
No
What is the difference between management and financial accounts ?
Financial accounting is meant for external stakeholders, Management accounting is presented internally
What type of account can be used as a project bank account ?
Escrow Account
What is a project bank account ?
Ringfenced account
Ensures contractos, key subcontractors and key members of the supply chain are paid on the contractually agreed dates
What are overheads ?
The indirect costs or fixed expenses of operating a business such as:
Rent
Utility bills
Staff salaries
Insurance
Explain the principle of tax depreciation
Is the depreciation expense claimed by a taxpayer on a tax return to compensate for the loss in the value of the tangible assets
What are the three types of accountancy ratios
Liquidity ratios
Profitability ratios
Gearing ratio
Define liquidity ratios
The organisations ability to turn assets into cash in order to pay debts
Define profitability ratios
Used to assess a business ability to generate earnings relative to its revenue, operating costs, balance sheets or shareholders equity over time, using data from a specific point in time
Define gearing ratio
Measure the proportion of a company’s borrowed funds to its equity.
The ratio indicates the financial risk to which a business is subjected
What is financial leverage ?
Is an investment strategy of using borrowed money
What are capital allowances ?
The practice of allowing tax payers to get tax relief on their tangible capital expenditure by allowing it to be deducted against their annual taxable income
What are the 3 key financial statements/ documents that companies use?
- profit and loss account
- balance sheet
- cash flow forecast
What is a Management account?
Management accounts are for the internal use of the management team
What is a financial account?
Financial accounts are the company accounts that are required by UK law.
What is a profit and loss account?
A profit and loss account shows the incomes and expenditures of a company and the resulting profit or loss.
What is a balance sheet?
The balance sheet shows what a company owns (it’s assets) and what it owes (it’s liabilities) at a given point in time.
What is a cashflow statement?
It is the summary of the actual or anticipated ingoing and outgoing of cash in a firm over theaccounting period.
What do cashflow statements measure?
It measures the short-term ability of a firm to pay off its bills.
Define Insolvency
An inability to pay debts where liabilities exceed assets.
Define Capital Allowances
Tax relief on certain items purchased for the business for example tools and equipment.
Define Sinking Finds
Funds that are set aside for future expense or long-term debt.
Define Companies House
An agency that incorporates and dissolves limited companies within the United Kingdom.
Define HMRC
His Majesties Revenue and Customs.
What are Liquidity ratios?
Liquidity rations measure the ability of a company to pay off its current liabilities by converting its current assets into cash.
What is liquidity ratio?
Liquidity ratio calculation = current assets / current liabilities.
What is liquidity ratio usually?
The ratio is usually around 1.5 but it depends on the sector of activity.