Accounting Principles And Procedures Level 1

Question 1

Why should you keep accounts?

Answer 1

• to pay suppliers
• legally
• to manage costs
• manage projects budget

Question 2

What is profit and loss?

Answer 2

Summarises revenue, costs and expenses incurred over a specific period

Question 3

What is the difference between management accounts and company accounts?

Answer 3

Company accounts provide overview of companys financial actions but management look at financial actions in detail.

Question 4

What is gross and net profit?

Answer 4

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.

Question 5

What are balance sheets?

Answer 5

Statement of what a company OWNS ( assets) and OWES ( capitals / liability)

Question 6

What is a cash flow statement?

Answer 6

Shows the inflows and outflows of cash for the entry for a period of time

Question 7

Does a cash flow include VAT?

Answer 7

Yes

Question 8

What is meant by depreciation?

Answer 8

How an item goes down in value over time, eg a car

Question 9

Sole trader?

Answer 9

A type of enterprise owned and run by one person, there is no legal distinction between the owner and the business entity

Question 10

Partnership?

Answer 10

An arrangement where parties known as business partners agree to co operate to advance their mutual interests.

Question 11

LLP? Limited liability partnership

Answer 11

A separate legal entity from its members, who are only liable for the amount of money that they invest.

Question 12

How would you go through a final account?

Answer 12

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

Question 13

Why do charted surveyors need to understand and interpret company accounts?

Answer 13

• assessing competion
• assessing financial strength of contractors and those tendering for contracts
• companies business accounts

Question 14

What is insider trading?

Answer 14

The trading of a public companys stock or other securities by individuals with access to non-public information about the company.

Question 15

What is the construction industry scheme?

Answer 15

• scheme created by HM revenue & customs for tax for contractors and subcontractors

Question 16

PQQ?

Answer 16

A tick box exercise where the organisation state compliance against legislative requirements eg environmental standards.

Question 17

What are the international financial reporting standards? IFRS?

Answer 17

A set of accounting rules for the financial statement of the public companies that are intended to make them consistent.

Question 18

GAAP

Answer 18

generally accepted accounting practice - the body of accounting standards

Question 19

IAS

Answer 19

International accounting standards - international standards

Question 20

IFRS

Answer 20

International financial reporting standards. A set of accounting rules for the financial statements of companies to make them consistent

Question 21

What is your understanding of tax depreciation?

Answer 21

Where the declining value of an asset is offset against a companies taxable profit

Question 22

What are overheads

Answer 22

The operating costs of the business that are incurred on an ongoing process

Question 23

What is a fixed and variable overhead example?

Answer 23

Fixed - insurance

Variable - tend to fluctuate on the activity eg delivery fees

Question 24

Whats an escrow account?

Answer 24

Contractural agreement that are used as financial instruments
The asset being transferred between two primary parties is held by an intermediary third party.

Question 25

Name the three types of accounting ratios?

Answer 25

Liquidity
Profitability
Gearing ratios

Question 26

Liquidity ratio?

Answer 26

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

Question 27

Profitability ratio?

Answer 27

Assess an organisations ability to generate profits from its sales operations and shareholding equity. It indicates how well a company is generating profit

Question 28

Gearing ratios?

Answer 28

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.

Question 29

What is financial leverage?

Answer 29

The concept of using burrowed funds in the form of debt to enhance business operations and increase the companies profitability and rate of return

Question 30

What are capital allowances?

Answer 30

Allow taxpayers to gain tax relief by using expenditures to be deducted from their taxable income

Question 31

Current vs fixed asset?

Answer 31

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

Question 32

What are the key financial statements that all companies must provide

Answer 32

Profit and loss, balance sheet and cash flow statement

Question 33

What is the purpose of profit and loss?

Answer 33

• to monitor and measure profit and loss
• to compare past performance
• to assist in forecasting future performance
• to calculate tax

Question 34

Whats the difference between debtors and creditors?

Answer 34

Debtors are the one to whom goods have been sold on credit, whereas creditors are the parties who sold the goods on credit.

Question 35

What are financial statements

Answer 35

A forecast of income and expenditure can be used as an analytical tool to identify potential shortfalls or surpluses