Accounting Principles and Procedures

Question 1

What is a profit and loss statement?

Answer 1

shows income, expenditures and profitability over a period of time.

Question 2

What is a cash flow statement?

Answer 2

total money amount being transferred in and out of a business in a given period, doesn’t consider depreciation etc.

Question 3

What is a balance sheet?

Answer 3

statement of assets, liabilities and owner’s equity at a particular point in time.

Question 4

What is the difference between a cash flow statement and a cash flow forecast?

Answer 4

A statement sets out the incomings and outgoings of a business for a prior period. In contrast, cash flow forecasting looks ahead to predict future cash flows and balances.

Question 5

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

Answer 5

balance sheet screenshot in time whereas income statement over period

Question 6

What is the difference between a cash flow statement and a profit and loss statement?

Answer 6

The main difference between a profit and loss statement and a cash flow statement is that a profit and loss statement measures the profitability of the business model while a cash flow statement shows the cash going into and leaving a business over a specific period.

Question 7

What financial documents need to be submitted by RICS firms and how often does this need to occur?

Answer 7

• Cash flow statement
• Profit and loss statement
• Balance sheet
• (Retained earnings)

To be submitted yearly

Question 8

What is owners equity? What financial statement calculates the owners equity?

Answer 8

The amount of equity an owner has after deducting liabilities.

Question 9

What is an asset?

Answer 9

resources that generate an economic benefit, e.g. cash / buildings

Question 10

What is a liability?

Answer 10

a financial obligation to debtors, e.g. loans / mortgages.

Question 11

What is the difference between income and losses?

Answer 11

Income – money or cash equivalent coming into a business whereas loss is money going out of the business.

Question 12

What is an audit?

Answer 12

An inspection of a company’s accounts by an independent body.

Question 13

What are accounts?

Answer 13

the process of keeping company accounts

Question 14

What is the purpose of financial statements?

Answer 14

• To provide to RICS
• To allow shareholders , managers and investors to make informed future business decisions and understand the performance of the business.
• To ensure that there is no wrongdoing or illegal activity.

Question 15

What is the purpose of a cash flow forecast?

Answer 15

looks ahead to predict future cash flows and balances. assess project delays, informs client on likely payment

Question 16

What does GAAP and IFRS stand for? What are they and what is their purpose?

Answer 16

Generally Accepted Accounting Principles and International Financial Reporting Standards. Two accounting standards adhered to when financially reporting.

Question 17

How does GAAP and IFRS differ?

Answer 17

GAAP – from US and rules based and more detail. IFRS – international and principles based, provides less detail so more room for interpretation.

Question 18

What is included in a cash flow forecast?

Answer 18

certificate no., application made, forecast valuation, actual valuation, variance, forecast net payment, actual net payment, certificate date.

Question 19

What are capital allowances?

Answer 19

a type of tax relief for businesses allowing you to deduct the value of an item from your profits before paying tax.

Question 20

What is financial leverage?

Answer 20

the strategic endeavour of borrowing money to invest in assets.

Question 21

What are the key differences between GAAP and IFRS?

Answer 21

• GAAP is a framework based on legal authority while IFRS is based on a principles-based approach.
• GAAP is more detailed and prescriptive while IFRS is more high-level and flexible.
• GAAP requires more disclosures while IFRS requires fewer disclosures.
• GAAP is more focused on the historical cost of assets while IFRS allows for more flexibility in the valuation of assets.

Question 22

When should a cash book and client ledger be used?

Answer 22

General client account is cash book and client ledger.
Discrete client account is cash book.

Question 23

What is the difference between a management and financial account?

Answer 23

Managerial accounting information is aimed at helping managers within the organization make well-informed business decisions, while financial accounting is aimed at providing financial information to parties outside the organization.

Question 24

What are signs of insolvency when undertaking checks on accounts?

Answer 24

• Low credit rating
• Falling working capital ratio as taken too many projects on
• Reliance on loans
• Falling cash flow statement
• Low return on equity

Question 25

Why do Building Surveyors need to be able to assess accounts?

Answer 25

• For own business accounts.
• For assessing the financial strength of contractors and those tendering for contracts.
• For assessing competition.

Question 26

What is the purpose of a P&L statement?

Answer 26

1) Monitor and measure profit (or loss). Significant problems can arise if the
information is inaccurate, either through incompetence or deliberate fraud.
2) Compared to its past performance, compared to the budget and compared to
other businesses.
3) Assist in forecasting future performance (next periods budget).
4) Calculate Tax

Question 27

What is the difference between a debtor and creditor?

Answer 27

Creditors - Your firm owes another firm money - e.g. If you owe a sub-consultant fees
then they are a creditor.
Debtors - A firm who owes your firm money - e.g. a client who owes you fees is a
debtor.

Question 28

How do you check if a new business you are trading with is genuine?

Answer 28

• Dun and Bradstreet financial rating / check
• Companies House
• Online research into the firm

Question 29

Name different types of accounting ratios?

Answer 29

• Liquidity ratio
• Working capital ratio (assets - liabilities / turnover
• Profitability ratio
• Financial Gearing ratio
• Investment ratio

Question 30

What measures should you recommend if the client wants to appoint a contractor with a low credit rating?

Answer 30

Request a bond
Check that the tender is not excessively front loaded
Make sure that work is accurately valued at interim valuations
Consider opening a project bank account