Accounting Principles and Procedures

Question 1

What is a balance sheet?

Answer 1

Statement of the business’s financial position showing assets and liabilities at a given date.

Question 2

What is an asset/liability?

Answer 2

Asset – used to produce value e.g property/cash

Liability – legally responsible for something e.g borrowings, loans, overdrafts

Question 3

What is a Profit and Loss Account?

Answer 3

Summary of a businesses income and expenditure transactions, annual basis

Question 4

What is a cashflow statement?

Answer 4

Shows all the actual receipts and expenditure including VAT.

Question 5

What is the difference between financial and management accounts?

Answer 5

Financial Accounts: undertaken by an accountant and are audited by a certified financial accountant

Management Accounts: undertaken for external purposes for the management board

Question 6

What is a consolidated set of accounts?

Answer 6

Number of induvial subsidiary accounts for a company with a single set of accounts

Question 7

What do you understand by the term Generally Accepted Accounting Principles (GAAP)

Answer 7

GAAP are a set of standards for financial reporting
Company accounts must be prepared in this way if they are to be shared outside of the company

Question 8

Within your line of work, what level of tax are you aware of?

Answer 8

SDLT, council tax, VAT, IHT, ATED

Question 9

You understand companies house, what do you use it for

Answer 9

Companies House is an official government website. Contains info such as company accounts, company info such as number and address, directors or persons with significant control.

Question 10

What important accountancy changes are you aware of?

Answer 10

How occupiers regard their properties liabilities. IFRS 16 is the lease accounting standards which all companies must comply with when using the International Financial Reporting Standards. The full cost of leases has to be accounted for on the balance sheet. Occupiers’ obligations to pay rent have to be recognized as a liability. Service charge accounted for separately. Exemptions exist for leases 12 months or shorter.

Question 11

How would you assess the financial strength of an entity, e.g. for a valuation?

Answer 11

You would look at their covenant strength. You would do this by looking at for example either Dun and Bradstreet or Creditsafe.

Look at debt to equity ratio

Question 12

Can you tell me about a common financial measure?

Answer 12

Revenue - Profit and loss statement

Question 13

What is the acid test / ROCE / working capital ratio / gearing ratio / net assets per share?

Answer 13

• Acid test = indicator if a business has short-term assets to cover its short-term liabilities
• ROCE = return on capital employed
• Working capital ratio = total assets /current liabilities
• Gearing ratio = compares company debt to equity (how a company is funded)
• Net assets per share = total assets – total liabilities / no. of equity shares

Question 14

Can you tell me what the role of an auditor is?

Answer 14

An as an external person who undertakes review of business accounts to ensure everything is in line

Question 15

Tell me what it means to prepare accounts in accordance with IFRS.

Answer 15

International Finance Reporting Standards state how particular types of transactions and other events should be reported in financial statements

Question 15

When are audited accounts needed and why?

Answer 15

Audited accounts are needed to ensure that companies are essentially doing what they are saying they are doing.

Question 16

Tell me something you understand from the Companies Act 2006.

Answer 16

Companies Act 2006 is to modernise company law.
* Nominee shareholders can elect to receive company information electronically if they wish.

Question 17

What is the difference between UK GAAP and IFRS?

Answer 17

GAAP
* rule based
* required if accounts go outside of company
* Allow for last-in, first-out
IFRS
* principles based
* Do not allow last-in, first-out (typically lowers net income)

Question 18

What is the basis of valuation under IFRS 13?

Answer 18

Fair Value measurement

Question 19

What is fair value?

Answer 19

Fair value

“The price that would be received to sell an asset, or paid to transfer a liability, in an orderly transaction between market participants at the measurement date”

Question 20

What is FRS 102?

Answer 20

Financial reporting standards 102 –
- it sets out the financial reporting requirements for entities that are not applying adopted IFRS

Question 21

What changes have been made to it?

Answer 21

Requires companies to revalue their tangible fixed assets
* Owner-occupied – existing use value
* Investment properties – market value

Question 22

What are statutory accounts?

Answer 22

Statutory accounts are financial statements or year-end accounts

Question 23

Why is good financial record keeping important to you?

Answer 23

Good financial record is important to me because it enables me to see what is coming in each month and for me to keep on top of what the team is billing.

Question 24

Tell me three ways you ensure that clients’ money is handled properly.

Answer 24

I personally don’t deal with client’s money. However, if I did, I would always adhere to the RICS Professional Standard: Client Money Handling, Oct 2019
* Keep a separate client account
* Clearly named account
* Ensure that they have their monies on demand

Question 25

RICS Professional Standard: Client Money Handling, Oct 2019

Answer 25

RICS Client’s Money Protection Scheme:
* Surveying services
* Residential services

Question 26

Explain your understanding of the VAT domestic reverse charge for building and construction services.

Answer 26

Implemented in March 2021 for construction services
The buyer (contractor) accounts for the VAT rather than the supplier. Ensures that VAT is reported correctly by workers.