Accounting Principles and Procedures (L1) Flashcards
What is VAT?
Value Added Tax - A tax added to most products and services sold by VAT-registered businesses.
What is Corporation Tax?
Corporation Tax is paid by UK limited companies and some other organisations. It is based on the annual profits that a company makes.
What is a financial audit?
An audit is an important term used in accounting that describes the examination and verification of a company’s financial records. They ensure financial information is represented fairly and accurately.
What is turnover?
Income or revenue that a company receives from its normal business activities, usually from the sale of goods and services to customers.
What are business overheads?
The indirect costs of operating a business, such as: Central staff salaries, insurance, rent costs.
Why do businesses keep company accounts?
Tax purposes (required by law. Demonstrates financial standing (to shareholders and lenders). To ensure cash flow and profitability are correctly managed.
What are management accounts?
Financial reports produced for business owners and managers. They are not required by law, but are desirable to inform strategic decisions.
What are financial accounts?
They describe the performance of a business and must be filed with Companies House. They give precise data to external stakeholders such as investors, tax officials etc.
What is an escrow account?
A type of legal holding bank account for monies, which can’t be released until predetermined conditions are met. They are often used to provide payment security to main contractors, as employers must put funds aside in a designated account prior to works being complete.
What is a project bank account?
Ring fenced bank accounts that allow for payments to be made directly and simultaneously to a main contractor and members of the supply chain. A cash flow disbursement model designed to protect the project from supply chain insolvency / late payment.
What is tax depreciation?
The depreciation expense claimed by a taxpayer to compensate for the loss in value of tangible assets.
Name three types of accounting ratios?
Liquidity ratio - Ability to turn assets into cash to pay debts.
Profitability ratio - Ability to generate profit relative to revenue.
Gearing ratio - Proportion of a company’s debt to equity.
What is financial leverage?
An investment strategy of using borrowed money to increase returns.
What are capital allowances?
Practice of allowing taxpayers to get tax relief on their tangible capital expenditure by deducting it from their annual taxable income.
Name the key financial statements that companies produce.
Profit and loss account, balance sheet, cash flow forecast.
Explain the difference between gross and net.
Gross is the total amount of income before deductions, while net is the total amount after deductions (such as tax).
Can you explain what equity is?
The value that an owner has in the business. Total assets minus total liabilities on the balance sheet.
What is UK GAAP?
Generally Accepted Accounting Practice - a regulatory body that establishes how accounts and financial reports should be prepared in the United Kingdom.
Why is it beneficial for surveyors to understand company accounts?
1) for assessing the financial health of competing surveying practices
2) for assessing the financial stability of tendering contractors.
3) to aid in preparing company accounts within their own surveying practice.
What is expenditure?
A payment with either cash or credit to purchase goods or services.
What is CAPEX?
Capital expenditure - spent to acquire or improve an asset such as equipment or buildings.
What is OPEX?
Operational or revenue expenditure - costs incurred in the day-to-day running of the business.
Why are CAPEX and OPEX split out in business accounts?
They have differing tax obligations, CAPEX can benefit from capital allowances.
What is a balance sheet?
A snapshot of a company’s financial position at a given point in time. It reports on a company’s assets, liabilities and ownership equity.
