Accounting Principles and Procedures Flashcards
What is GAAP
General Accepted Accounting Principles.
- Regulatory body that establishes how accounts and finical reports should be prepared in the UK
- Regulations set by the UK Financial Reporting Council
What financial information is requested as part of the PQQ
As part of firms standard PQQ
- Company turnover (last 3 years)
- Anticipated and secured turnover
- Live project Qty and value
- Company accounts (last 3 years)
- Details of any damages levied against contracts currently or in the last 3 years
What us a balance sheet
It is a snap shot of a companies financial position at a given point. It will show a companies net worth and overall financial health by recording assets liabilities and shareholder equity
What is a profit and loss account
It is a reporting documents which shows the companies financial position such as revenue and expenses over a interim reporting period and shows if the company has made a profit or a loss over that period.
What are business overheads
They are indrect costs or fixed expenses of operating a business
- renting/leasing costs
- utility bills
- staff salaries
- insurances
What is an escrow account
a type fo legal holding bank account for monies, which cannot be realised until redetermined conditions are met
Please name three types of accounting ratios
Liquidity ratio - ability to turn assets into cash in order to pay debt
Profitability ratio - Ability to generate earnings relative to its revenue, operating costs, balance sheet assets or shareholder equity over time
Financial gearing ratio - Measures the proportion of a company’s borrowed funds to its equity and is measure of financial risk
What are the core financial statements a company might produce
- balance sheet
- profit and loss
- Cashflow forecast
Why is it beneficial for surveyors to understand companies accounts
- To assess the financial stability of tendering contractors
- To prepare companies accounts for own firm
- To assess the financial health of a competing surveying practice
What is capital expenditure
Also known as CAPEX, it is expenditure used to acquire or improve an asset, such as equipment or buildings
what are current assets
Short-term asset that are intending to use up or convert in to cash within 1 fiscal year or operating cycle
What is a cashflow forecast
It is a forecast of income and expenditure over a set period of time. It is used as a planning tool for managing money.
Why is cashflow important for a building project
- Shows forecast payments to ensure sufficient funds are readily available. presents financial commitment to the client
- 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 signs of contractor insolvency on a construction project
- Slowing down for works
- Supply of materials drying up
- increase in defective or substandard work
- changes in management
- additional or inflated payment requests
- complaints from sub-contractors
What steps would you take in the event of a contractor insolvency on a project
- Inform all stakeholders and secure the site
- Inform any financial parties such as the bank or insurance company
- Consider stopping interim payments and seek legal advice
- Take ownership of any materials offsite that have been paid for
- make a schedule of all plant and materials
- Value completed works and schedule any defects
- monitor loss and expense incurred by the employer
- terminate the building contract and appoint replacement to complete the works.
