Accounting Principles And Procedures Level 1 Flashcards
Why should you keep accounts?
- to pay suppliers
- legally
- to manage costs
- manage projects budget
What is profit and loss?
Summarises revenue, costs and expenses incurred over a specific period
What is the difference between management accounts and company accounts?
Company accounts provide overview of companys financial actions but management look at financial actions in detail.
What is gross and net profit?
Net profit reflects the £ you have left after paying all your business expenses. Gross is the amount of £ left after deducting the cost of goods from revenue.
What are balance sheets?
Statement of what a company OWNS ( assets) and OWES ( capitals / liability)
What is a cash flow statement?
Shows the inflows and outflows of cash for the entry for a period of time
Does a cash flow include VAT?
Yes
What is meant by depreciation?
How an item goes down in value over time, eg a car
Sole trader?
A type of enterprise owned and run by one person, there is no legal distinction between the owner and the business entity
Partnership?
An arrangement where parties known as business partners agree to co operate to advance their mutual interests.
LLP? Limited liability partnership
A separate legal entity from its members, who are only liable for the amount of money that they invest.
How would you go through a final account?
Request a copy of the contractors company accounts for the last three years. I would then be able to asses
- if the contractor was profitable in the last few years
- calculate their liquidity ratio
Why do charted surveyors need to understand and interpret company accounts?
- assessing competion
- assessing financial strength of contractors and those tendering for contracts
- companies business accounts
What is insider trading?
The trading of a public companys stock or other securities by individuals with access to non-public information about the company.
What is the construction industry scheme?
- scheme created by HM revenue & customs for tax for contractors and subcontractors
PQQ?
A tick box exercise where the organisation state compliance against legislative requirements eg environmental standards.
What are the international financial reporting standards? IFRS?
A set of accounting rules for the financial statement of the public companies that are intended to make them consistent.
GAAP
generally accepted accounting practice - the body of accounting standards
IAS
International accounting standards - international standards
IFRS
International financial reporting standards. A set of accounting rules for the financial statements of companies to make them consistent
What is your understanding of tax depreciation?
Where the declining value of an asset is offset against a companies taxable profit
What are overheads
The operating costs of the business that are incurred on an ongoing process
What is a fixed and variable overhead example?
Fixed - insurance
Variable - tend to fluctuate on the activity eg delivery fees
Whats an escrow account?
Contractural agreement that are used as financial instruments
The asset being transferred between two primary parties is held by an intermediary third party.
Name the three types of accounting ratios?
Liquidity
Profitability
Gearing ratios
Liquidity ratio?
Consider an organisations ability to pay their debt obligations and asses its margin of safety by looking at their operating cash against short term debt
Profitability ratio?
Assess an organisations ability to generate profits from its sales operations and shareholding equity. It indicates how well a company is generating profit
Gearing ratios?
Compare a capital within the company against its debts. A measure of companies financial leverage and sets out what proportion of the firms activities are funded by shareholders.
What is financial leverage?
The concept of using burrowed funds in the form of debt to enhance business operations and increase the companies profitability and rate of return
What are capital allowances?
Allow taxpayers to gain tax relief by using expenditures to be deducted from their taxable income
Current vs fixed asset?
Current - normally can be converted into cash within one financial year and are regarded as assets that allow day to day operations eg services
Fixed - typically cannot be converted into cash within one year. These assets are recorded on a company’s balance sheet as fixed assets the company owns on a long term basis. E.g vehicles
What are the key financial statements that all companies must provide
Profit and loss, balance sheet and cash flow statement
What is the purpose of profit and loss?
- to monitor and measure profit and loss
- to compare past performance
- to assist in forecasting future performance
- to calculate tax
Whats the difference between debtors and creditors?
Debtors are the one to whom goods have been sold on credit, whereas creditors are the parties who sold the goods on credit.
What are financial statements
A forecast of income and expenditure can be used as an analytical tool to identify potential shortfalls or surpluses
