Accounting principles and procedures Flashcards
What is a balance sheet?
• A balance sheet is a statement showing a business’s financial position at a point in time.
Assets
Current assets = assets to be used within 1 year
Non-current (fixed) assets = plant, machinery and equipment etc.
Liabilities = amounts a business owes due to past transactions e.g. wages and loans
What is a profit and loss account?
• A summary of a business’s income and expenditure transactions usually prepared on an annual basis.
Revenue = income the business receives from its business activities e.g. money from things it sells
Expenses = outgoings that arise as the entity performs its business activities e.g. costs incurred in order to provide their service.
What is a cashflow statement?
• Cash flow shows the actual receipts and expenditure and includes VAT.
Helps identify balance
Identify if payments can be made
What is the difference between Management and Company accounts?
Management accounts are used internally by the managers of the business
Financial accounts are company accounts required by law and audited by a Chartered Accountant.
What is the difference between a Sole Trader, Partnership, Limited, and a LLP?
- Sole Trader
A person who is the exclusive owner of a business - Partnership
A business organization in which two or more individuals manage and operate the business - Limited
In a limited company, the shareholders’ liability is limited to the capital they originally invested - Limited Liability Partnership (LLP)
A limited liability partnership (LLP) is a partnership in which some or all partners have limited liabilities
What are ‘Dun and Bradstreet’ reports?
DandB reports provide scores and ratings to help identify organisations that are likely to fail or pay late
Provides a commercial credit score
Why do chartered surveyors in your pathway need to understand and be able to interpret company accounts?
- Companies business accounts.
- For assessing the financial strength of contractors and those tendering for contracts.
- For assessing competition.
Why is having an understanding of accountancy required as a QS?
- To be able to understand the financial health of a project to protect the clients interests.
- To understand your own financial health.
- To be able to understand the financial health of a company.
What are some examples of assets?
- Fee income from clients
- Plant equipment owned
- Rent income
- Property owned
What are some examples of liabilities?
- Staff wages
- Rent payments for office premises
- Insurance
- SC payment
How often do company accounts need to be logged and where?
- This is once a year and need to be published to the HMRC and companies house.
- This can be at any time of the year.
What is the difference between liquidity, administration and insolvency?
- Liquidity is the process of selling all assets before dissolving the company completely.
- Insolvency means the company is unable to pay it’s debts.
- Administration aims to help the company repay debts in order to escape insolvency (if possible)
What is capital expenditure?
Money spent by a business or organization on acquiring or maintaining fixed assets, such as land, buildings, and equipment.
Why do chartered surveyors in your pathway need to understand and be able to interpret company accounts?
- For your own business accounts.
- For assessing the covenant strength of potential tenants and landlords.
- For assessing the financial strength of contractors and those tendering for contracts.
- For profits-method valuations (for leisure properties).
- For assessing competition.
What is the companies act 2006?
This sets out that companies must submit their annual financial account to companies house and HMRC.
