Accounting Principles and Procedures Flashcards
(43 cards)
What is VAT?
- Value-added tax.
- VAT is a tax added to most products and services sold by VAT-registered businesses.
What is corporation tax?
Corporation tax is paid by UK limited companies and some other organisations. It is based on the annual profits that a company makes.
What is a financial audit?
- An audit is an important term used in accounting that describes the examination and verification of a company’s financial records.
- It is to ensure that financial information is represented fairly and accurately.
What is turnover?
Income or revenue that a company receives from its normal business activities, usually from the sale of goods and services to customers.
What are business overheads?
The indirect costs or fixed expenses of operating a business such as:
- Rent / leasing costs.
- Utility bills.
- Staff salaries.
- Insurance.
Why does a business keep company accounts?
- Tax purposes (required by law).
- Demonstrates the company’s financial standing (supports loan or borrowing applications).
- To ensure cash flow and profitability in a company are correctly managed.
What are management accounts?
- Management accounts are financial reports produced for business owners and managers.
- They summarise the business’ current financial health and are a valuable tool that can be used to make strategic decisions.
What is the difference between management and financial accounts?
- Financial accounts describe the performance of the business and must be filed with Companies House. They give precise data to external stakeholders such as investors, tax officials and business regulators.
- Management accounts are used by business owners and management for day-to-day and strategic decision making. They aren’t required by law, and they don’t have to be filed with Companies House.
What is an escrow account?
An escrow account is a type of legal holding bank account for monies, which can’t be released until predetermined conditions are satisfied.
What is a project bank account?
- These are ring-fenced bank accounts that allow for payments to be made directly and simultaneously to the contractor and members of the supply chain.
- In essence, it is a cash-flow disbursement model designed to protect the project from the risk of supply chain insolvency and speed up payment times.
Can you explain the principle of tax depreciation?
Tax depreciation is the depreciation expense claimed by a taxpayer on a tax return to compensate for the loss in the value of tangible assets. Examples include property, plant and equipment.
Please name three types of accounting ratios?
- Liquidity ratio - the organisation’s ability to turn assets into cash, in order to pay debts.
- Profitability ratio - used to assess a business’s ability to generate earnings relative to its revenue, operating costs, balance sheet assets, or shareholders’ equity over time.
- Gearing ratio - measures 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?
Financial leverage is the use of borrowed money (debt) to finance the purchase of assets with the expectation that the income or capital gain from the new asset will exceed the cost of borrowing.
What are capital allowances?
The practice of allowing taxpayers to get tax relief on their tangible capital expenditure by allowing it to be deducted against their annual taxable income.
What are the core financial statements which companies might produce?
- Profit and loss account.
- Balance sheet.
- Cash flow forecast.
Can you explain the difference between ‘gross’ and ‘net’ in accounting terms please?
- Gross refers to the total amount of income before deductions
- Net is the total after deductions or adjustments.
Can you explain what shareholder equity is please?
- Equity represents the amount of money that would be returned to the company’s Shareholders if all of the assets were liquidated and all of the company’s debt was paid off in the case of liquidation.
- It is effectively the value that an owner (such as a company director) has in the business.
What is UK GAAP?
UK GAAP, short for Generally Accepted Accounting Practice, is a regulatory body that establishes how accounts and financial reports should be prepared in the United Kingdom.
Why is it beneficial for surveyors to understand company accounts?
- For assessing the financial health of competing surveying practices.
- To assess the financial stability of tendering contractors and subconsultants.
- To aid in preparing company accounts within their own surveying practice.
What is expenditure?
Expenditure represents a payment to purchase goods or services.
What is capital expenditure?
- Known as CAPEX (capital expenditure).
- Capital expenditure is spent to acquire or improve an asset, such as equipment or buildings.
What is operating expenditure?
- Known as OPEX (operating expenditure).
- Operating expenses are costs incurred in the day-to-day running of the business. For example, servicing a machine, buying spare parts, etc.
Why are CAPEX and OPEX budgets split out in company accounts?
They have different tax obligations; for example, CAPEX can benefit from capital allowances.
What is a balance sheet?
- A balance sheet is a ‘snapshot of a company’s financial position at a given point in time.
- It shows the company’s net worth and overal financial health by recording assets, liabilities and shareholder equity.
