ACCOUNTING PRINCIPLES AND PROCEDURES - Level 1 Flashcards
What should be submitted in a Companies’ Annual Accounts?
- Profit and Loss Statement
- Balance Sheet
- Notes about the account
- Director’s Report
- Auditor’s Report
Difference between profit and loss and balance sheet
Balance Sheet - snapshot in time
Profit and Loss - Over a period of time
Could you please tell me what accounting actually means in your own words?
Accounting is the process of recording financial transactions within business
Why is accounting important in Construction especially?
Ensure companies are stable
Able to pay employees
Understand asset and liabilities
What is a cash flow statement
all money going in and out of a business over a period of time
cashflow statement what do you see on one?
- Operating - rent / expenses
- Investing – technology/ it equipment
- financing activities – payments of profits/dividends
You mention cash flows, what information can you gather from reviewing a cashflow forecast at regular intervals in during the construction phase of a project?
- programme delays
* over valuing works
- How can you validate what’s included in a cash flow?
- Compare against contract PC date / target completion date -
- Monies included in the CSA
- Activities on programme align with amounts predicited on cashflow
What is a profit and loss statement?
Companies revenue and expenses over a period of time
Assets , liabilities, Shareholder Equity
What is a Balance Sheet?
Companies revenue and expenses at snapshot in time
How does a balance sheet balance?
Total Assets = Equity and Liabilities
Are there different types of assets?
- Current = quick < 1 year cash
* Fixed longer – 1 year + building etc
- What is a liability?
• Anything owed by a business – loan or debt
Are there different types of liabilities?
Short term
Long term
- What do you look for when analysing a fee proposal?
- Errors
- Exclusions
- Have they understood the brief they have been asked too
- Timescales
- Cost
- Insurance levels meets clients request
- Why is it important to have exclusions and assumptions included?
• Makes it clear to clients what is not allowed for in your bid and also areas which were not clear or may require further details
- Why do construction companies typically fail?
- Poor accounting
- Poor management
- Poor organsiation
- Trying to grow to big
- Trying to expand in sectors to fast etc
- What pieces of legislation aims to provide fairer payment in the construction industry?
Housing Grants, Construction and Regeneration Act 1996
Construction Act 1990
- You mention that it is important for clients to analysing a company’s financial status in your summary, why is this?
- Understand if on target to achieve goals
- Assess if corrective measures are required
- Solvency
- What benefit can clients gain from assessing a contractors financial standing before entering into contract and are you aware of what may be considered a red flag to a client doing such checks?
- Insurance claims
- Poor credit ratio
- Extent of liabilities
- Can you explain what information companies house might hold on a business and why you may need this?
• Initial registration info – company type , directors , services etc and any changes, office
• Annual accounts
• Directors report
• Auditors report
To assess amount of corporation tax owed , and to assess financial strength
- Can you talk me through typical payment terms that an appointment for one of your projects may be based on?
- Exhange of Contracts
- Monthly drawdown during agreed contract duration
- Final payment on End of making good defects
• 28 day payment terms – White City
In what scenario may you need to request additional fees from one of your client and can you talk me through the process you would go through in order to agree an additional fee with your client.
- Scope creep
- Extended programme
- Hourly rate
- Discuss with line manager and equity partner
- Mechanism in appointments for additional work
- You mention that you are aware of signs that a company may become insolvent, what does the term insolvent mean to you?
- Generic term for the inability to pay off debts which may lead to bankruptcy, liquidation, admistration
- Administration = appointed to deal with companies affairs by creditor
- Liquidation = shutting down of limited company
- Can you give me a couple of examples of such signs that a company may be in financial difficulties?
- Struggle to get materials
- Lack of labour onsite
- Programme delays which are difficult for the contractor to substantiate
- Supply chain issues/ complaints
- Chasing up payments earlier than final date
- Inflated variation costs
- Staff/ management turnover
What is GAAP - Generally Accepted Accounting Practice
is the overall body of regulation establishing how company accounts must be prepared in the United Kingdom
What is an auditor
specialist who performs inspections and verification of financial accounts
