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APC ASSESSMENT > Accounting Principles and Procedures (Level 1) > Flashcards

Accounting Principles and Procedures (Level 1) Flashcards

1
Q

Why should you keep accounts?

A

Track
Monitor profit/loss
Business planning
Submit financial statements to companies house

Company’s Act 1985 – year end accounts submitted as limited companys

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2
Q

Difference between management and company accounts?

A

Management accounts – internally

Company accounts ; required by law and audited by chartered accountant

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3
Q

What is meant by gross and net?

A

Gross = total

Net = minus tax

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4
Q

What is a balance sheet?

A

Statement showing business financial positon

Assets and liabilities

Assets: cash, property, debtors
Liabilities: borrowings, loans, creditors

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5
Q

What is a profit and loss account (income statement)

A

Summary of business income and expenditure

prepared on annual basis

Demonstrate how revenue is transformed into net income

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6
Q

What is a cash flow statement?

A

Actual receipts and expenditure and includes VAT

Can reveal shortfalls in cash balance

Review helps ensure businesses can afford to pay suppliers

Struggling companies should review cash flow daily

Healthier companies review weekly or monthly

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7
Q

What is meant by depreciation in relation to an asset?

A

Systematic reduction in recorded cost of fixed asset. E.g. IT equipment

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8
Q

What is the difference between a Sole Trader, Partnership, Limited and LLP

A

Sole trader = person exclusive owner of business to keep all profits

Partnership =two or more indivuduals who operate and manage.

Limited = liability limited to capital they originally invested. If insolvent, personal assets protected. Not offered to general public

Limited Liability Partnership = some or all partners have limited liabilities. One partner not responsible for another partners negligence.

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9
Q

How would you assess a contractors financial accounts?

A

Request contractors company accounts for last 3 years
. Include profit and loss statement
. balance sheet
. cash flow statement

Assess contractor is profitable

Calculate liquidity ratio – assets v liabilities – to asses if they can cover contract losses

Caveat advice given to client and recommend chartered accountant to review

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10
Q

What are Dun and Bradsheet?

A

Reports to provide scorings and ratings to help identifying credit score

Financial strength derived from net worth

Risk indicator

Limitations: historic and look at past performance, not future

Profit may be declining in recent years

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11
Q

Main types of ratio analysis to assess company financial strength?

A

Liquidity – assets/liabilities

Leverage – net debt/equity

Profitability

Gross Margin – gross profit/net sales

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12
Q

Why do chartered surveyors need to be able to understand company accounts?

A

Companies business accounts

Covenant strength

Assessing competition

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13
Q

What is insider trading?

A

Trading of public stock by individuals with access to non-public information

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14
Q

Construction Industry Scheme (CIS)?

A

HMRC scheme – minimise tax evasion from subcontractors

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15
Q

What is a balance sheet?

A

Financial statement of company’s assets, liabilities, equity

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16
Q

What does a balance sheet tell you?

A

How much owns (assets) and owes (liabilities)

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17
Q

What is a profit and loss account?

A

Compares revenue to expenditure and liabilities

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18
Q

What is include in a profit and loss account?

A

Revenue, expenditure, liabilities

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19
Q

Are profit and loss accounts current?

A

No, retrospective

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20
Q

What happens if company’s liabilities are greater than its assets?

A

Likelihood will go into administration

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21
Q

What does the term liabilities mean?

A

Outstanding cost, yet to be paid

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22
Q

What does the term assets mean to you?

A

A) Owned assets with value attached

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23
Q

How can you analyse company accounts/

A

A) Liquidity
B) Profitability
C) Leverage

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24
Q

What is corporation tax?

A

A) Tax levied on company profits

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25
Q

What does corporation tax apply to ?

A

A) All limited companies

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26
Q

What profits do companies pay corporation tax on?

A

A) Trading profits

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27
Q

What is VAT

A

A) Value added tax on goods and services
B) Charged on companies with turnover over £82k

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28
Q

What are capital allowances?

A

A) Tax relief on certain items bought for business (tools, IT etc)

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29
Q

Who can claim capital allowances?

A

A) Limited companies
B) Sole traders

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30
Q

What are sinking funds?

A

A) Set aside revenue for future expenses or long term debt (service charge works)

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31
Q

What is revenue expenditure?

A

A) Cost of maintaining existing assets

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32
Q

What is capital expenditure?

A

A) The cost of purchasing or upgrading an existing asset, the cost of which are spread over the useful life of the asset, and shown on the balance sheet.

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33
Q

What is a cash flow?

A

A) Incoming and outgoings of cash within a business

34
Q

What procedures can you implement to improve cash flow?

A

A) Negotiate shorter payment terms with client
B) Negotiate longer payment terms with suppliers

35
Q

Who requires auditing?

A

A) Public companies
B) Companies with turnover more than £6.5m
C) Companies providing financial services

36
Q

Where can you find information on a company’s financial status?

A

A) Companies house

37
Q

What is debt ratio analysis?

A

A) Debts compared to assets

38
Q

What is insolvency?

A

A) Where a company is unable to pay debts

39
Q

What are the types of insolvency?

A

Company voluntary arrangements
Administration
Administrative receivership
Company compulsory liquidation
Voluntary liquidation

40
Q

What are the signs of insolvency?

A

A) Front loading
B) Overvaluing interim valuations
C) Asking for upfront payment

41
Q

Who is employed when a company becomes insolvent?

A

A) Administrator, who will try and keep the company going
B) Liquidator who will wind up the company and sell assets

42
Q

What options are available to company that has gone insolvent?

A

A) Administration
B) Company Voluntary Agreement
C) Compulsory Liquidation

43
Q

What is administration

A

A) A method of holding a business together, whilst plans to form restructure or sell assets put in place

44
Q

What to do if contractor goes insolvent?

A

A) Stop payments
B) Inform client

45
Q

Types of insolvency

A

A) Cash flow insolvency
B) Balance sheet insolvency

46
Q

What is cash flow insolvency?

A

A) Company has enough assets but not enough cash/equity

47
Q

What is balance sheet insolvency?

A

A) Not enough assets to pay debts

48
Q

Difference between management accounts and financial accounts?

A

A) Management accounts = internal
B) Financial accounts = required by law, follow pre-determined format

49
Q

Consolidated set of accounts

A

Number of accounts of individual subsidiary accounts for a company

50
Q

What financial checks may you undertake on a company before entering into contract?

A

A) Checked published accounts
B) Check credit ratings
C) Check references from previous clients

51
Q

Profitability test

A

A) 3 years of audited accounts showing net profit of 3x annual rent.

52
Q

ESCROW accounts

A

A) A separate account owned by 3rd party
B) Neutral account before transferred to another account

53
Q

When do you use ESCROW accounts?

A

?

54
Q

Company Act 2006

A

A) Legislation that regulates all aspected of private and public companies.
B) General practice on accountancy obligations, return accounts annually

55
Q

International Financla Reporting Standards (IFRS)

A

Accounting rules for financial statements of public companies

RICS Valuation – Global Standards: UK National Supplement 2018 includes valuation practice guidance – application (VPGA) 1 relating to valuations for financial reporting.

This sets out the two financial reporting frameworks adopted by UK companies: the IFRS and UK Generally Accepted Accounting Practice (GAAP).

PLCs must follow the IFRS when preparing their group company accounts, but may adopt either these or UK GAAP for individual parent company account

56
Q

IFRS 16

A

IFRS 16 brings almost leases (more than 12 months long) onto the balance sheet, where they are treated as finance leases. This makes it easier to assess an entity’s lease commitments and to compare different entities, using their financial statements.

The full cost of leases have to be accounted for on the balance sheet

Occupiers liability to pay rent has to be recognised as liability
Exemptions for 12 months or shorter

Review your company accounts
Understand what is included in accounts

Purpose of balance sheet (statement of financial position)

Purpose of profit and loss account (income statement)

Understand difference between management and statutory accounts

57
Q

What did you learn from your CPD seminar on analysing balance sheet?

A

?

58
Q

What did you learn from your CPD seminar on profit and loss accounts?

A

?

59
Q

What did you learn from your CPD seminar on financial statements?

A

?

60
Q

What is IFRS and IFRS 16 that companies must adhere to?

A

?

61
Q

How do you review covenant strength?

A

?

62
Q

How do you review covenant strength using CreditSafe?

A

?

63
Q

What are the key financial statements that all companies must provide?

A

Profit & loss account
Balance sheet
Cash flow

64
Q

What is bankrupcy?

A

The insolvency of an individual

65
Q

How would you assess the financial standing of a contractor

A

CreditSafe/D&B financial credit check - establish credit limits, recommended contract value, failture score, submitting accounts in a timely manner, review T/o and profitability.

Request copy of accounts

Companies House check

Internet search

66
Q

What is GAAP

A

General Accepted Accounting Procedures

Clear, consistent comparable method of accounting …. To ensure financial reportin is transparent and consistent

67
Q

In the UK where are statutory accounts for limited companies required to be filed

A

Companies house & HMRC

68
Q

Is VAT incl in a balance sheet or profit and loss?

A

In Balance sheet only

69
Q

Hurdle Rate

A

in accounting, this is the minimum rate of return required on an investment.

A company may have a minimum hurdle rate that it wants to achieve on projects or investments, compared to the potential or actual rate of return.

70
Q

Joint Venture

A

a contractual arrangement whereby two or more parties undertake an economic activity that is subject to joint control’

71
Q

Net Asset Value (NAV)

A

financial ratio that shows the net value of an entity’s assets minus its liabilities, divided by the number of outstanding shares.

72
Q

Quarter days

A

in England, these are:
25 March
24 June
29 September and
25 December

73
Q

What is a yield?

A

rate of return on investment

74
Q

What is the Companies Act 2006?

A

?

75
Q

Management Accounts v Financial Accounts?

A

?

76
Q

what is the difference between Profit and loss statement v balaance sheet?

A

?

77
Q

What is the purpose of a cash flow statement?

A

?

78
Q

What do companies need to provide every year in accordance with the Companies Act 2006?

A

?

79
Q

How do you carry out a credit check / analyse company accounts?

A

?

80
Q

What is your company’s current turnover and profit?

A

7.5m turnover
1m profit

81
Q

What’s the difference between IFRS and UK GAAP?

A

IFRS is international accounting standards and UK GAAP is usually meaning UK.

APAM reports under UK GAAP and Catella reports under IFRS

82
Q

Do you provide financial advice?

A

I am not a qualified accountant.

I am aware of accounting ratios, I do not claim that I am analysing companies accounts to client!

ETHICS!!

APC ASSESSMENT (18 decks)

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