Accounting principles and procedures Flashcards
What is GAAP?
Generally Accepted Accounting Practice
- It is a regulatory body that establishes how accounts and financial reports should be prepared in the UK.
What financial information is requested as part of a PQQ?
As part of our firm’s standard PQQ, I would request the following financial information:
- Company turnover (past 3 years)
- Anticipated and secured turnover
- Live project qty and value
- Company accounts (past 3 years)
- Details of any damages levied against contracts currently or within the past 3 years
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 companies net worth and overall financial health by recording assests, liabilities and shareholder equity.
What is a Profit and Loss account?
A profit and loss account shows a company’s revenue and expenses over a particular period and shows whether the business has made a profit or loss over that period.
What are business overheads?
The indirect costs or fixed expenses of operating a business, such as:
- Rent/Leasing costs
- Utility Bills
- Staff salaries
- Insurance
What is an escrow account?
A type of legal holding bank accoutn for monies, which can’t be released until predetermined conditions are met.
Please name three types of accounting ratios
- Liquidity Ratio: Ability to turn assests into cash in order to pay debts
- Profitability Ratio: Ability to generate earnings relative to its revenue, operating costs, balance sheet assests or shareholders quity over time.
- Gearing Ratio: Measures the proportion of a company’s borrowed funds to its equity and is a measure of financial risk.
What are the core financial statements a company might produce?
- Balance Sheet
- Profit and Loss
- Cash Flow Forecast
Why is it beneficial for surveyors to understand company accounts?
- To assess the financial stability of tendering contractors and subconsultants
- To sid in preparing company accounts within their own firm
- To assess the financial health of competing surveying practices
What is capital expenditure?
Also known as CAPEX, it is the expenditure used to aquire or improve an assest, such as equipment or buildings
What are current assests?
Current assests refer to short-term assest that are intending to use up or convert to cash within 1 fiscal year or operating cycle.
What is a cash flow forecast?
- A document which shows how much money you expect your business/project to receive and pay out over a set period.
- It is used as a planning tool for managing money (incoming/outgoing)
Why is cash flow important for a building project?
- Allows the client to gain an understanding of their financial commitment over the duration fo a project
- Can be used to estimate when funding will be required
- Acts as a check against valuations and can give an early indication of financial difficulty
- Identify periods of negative cashflow in advance to manage solvency
What are the signs of contractor insolvency on a construction project?
- Slowing down of works
- Supply of materials drying up
- Increase in defective or substandard work
- Changes in management
- Additional or inflated payments requests
- Complaints from subcontractors
What steps would you take in the event of contractor insolvency on a project?
- Inform all stakeholders and secure the site
- Inform any financial parties such as the bank or insurance comapny
- Consider stopping interim payments and seek legal advice
- Taek ownership of any materials off site that have been paid for
- Make a schedule of all plant and materials
- Value completed works and schedule defects
- Monitor loss and expense incurred by the employer
- Terminate the building contract and appoint replacement to complete the works,
