Accounting Principles and Procedures (MP) Flashcards
What are the key financial statements that all companies must provide?
a. Profit and loss Account
b. Balance Sheet
c. Cash Flow Statement
What is a profit and loss account?
a. Account which shows the total profit or total loss from incomes and expenditures
What is a balance sheet?
a. A balance sheet shows what a company owns (assets) vs what it owes (liabilities)
What is a cashflow statement?
a. A cashflow statement displays a firm monthly incoming and outgoings over a period of time. This can be either actual or anticipated.
What are capital allowances?
a. Tax relief on capital expenditure used to improved an asset
b. Require a capital allowance tax consultant to do
What is Dun and Brandstreet?
a. Financial report / credit checking report system used
RATIO ANALYSIS
a. LIQUIDITY
i. Measures current assets against current liabilities = availability of cash
ii. Measure the firms ability to meet short term obligations
iii. How quick can it convert its assets to cash
b. PROFITABILITY RATIO
i. Measures the firms ability to earn profit
ii. Establishes margins
c. FINANCIAL GEARING RATIO
i. Compare owners capital to debt or funds borrowed by the company
ii. Measurement of the entity’s financial leverage
d. RETURN TO ASSETS RATIO
i. Indicates how well a company investment generate value
Why do chartered surveyors need to understand company accounts?
a. Understand their own company accounts / performance
b. To assess financial standing of contractors / tenders
c. Understand firms success/competition
What is the purpose of Profit and loss?
a. To show a firms general performance over a period
b. Benchmark against previous years
c. Assessment tool for future performance
d. Allows business to decide on investment
What is the difference between creditors and debtors?
a. Creditors are people you / the firm owe
b. Debtors are people who owe you / your firm
What are management accounts?
a. Internal financial accounts which allow internal management
What is the late payment of Commercial Debts Act?
a. Add an implied term to business contracts for the supply of goods and materials, giving 8% interest per year on the price
What are financial statements?
a. Forecast income and expenditure
What are Escrow accounts?
a. Separate third party bank accounts ‘project bank accounts’
b. RICS Practice Statement Client Money Handling
i. Client Name
ii. Separate
iii. Clear governance procedure
iv. Account handler
v. Interest / No debt
vi. Mechanisms for releasing funds
When have you used company accounts in your work?
a. PQQ questionnaire for suitable contractors to Tender
How do you analyse company accounts
a. Basic check on companies house and dun & Bradstreet
b. Passover financial information to clients finance / account team
What are signs of insolvency in company accounts?
a. Low credit rating
b. Falling working capital ratio
c. Falling cashflow statement
Why would you not recommend the appointment of a contractor with low credit rating?
a. Risk of contractor not performing
b. Risk of available resources
c. Risk of supply chain insolvency
What measures would you advise your client with a contractor with a low credit rating?
a. Performance bond
b. Accurate valuation payments
c. Tender is not excessively front loaded
d. Consider project bank account
What is a balance sheet?
a. Shows the companies assets and liabilities (owns and owes)
What is a profit and loss statement?
a. Financial statement which shows the total effect on incomings and outgoings
What is the difference between a balance sheet and profit and loss statement?
a. Profit and loss shows over a period of time whereas a balance sheet shows it at a given snapshot (end of year) – two balance sheets per year
What is the difference between management and financial accounts?
a. Management accounts are for internal use, whereas financial accounts are shared externally
How would you produce a cashflow for your client?
a. S curve formula
b. Price activities within the programme
What is the current rate of inflation?
a. 7.8%*
What was Mace’s profit last year?
a. 2020 annual review £20mil pre tax profit
If the contractor becomes insolvent, how do you deal with it?
a. Most contracts will allow employers to terminate the employment of the contractor in the event of contractor insolvency and to cease payment. Typically, the contract will also allow them to employ others to complete the works and to use plant, tools, equipment, materials, temporary buildings and so on to do so. However, the employer must be certain of the insolvency first, and may seek evidence to confirm the fact.
You are informed that the contractor on site is going insolvent and that you should keep the valuation on the light side? – how do you respond to this?
a. Not performing duty correctly and advise against this.
b. Speak to director about behaviour / report this
What is insolvency?
a. When a company cannot pay off its creditors
What is revenue and capital expenditure?
a. CAPEX and OPEX expenditure is different as both have varying levels of tax relief incurred by a business.
b. In cost reports for Citi Amsterdam these are separated out
What is an audit?
a. Audit is generally a third party / auditor who checks through a company’s system / processes to ensure compliance with a certain accreditation or policy in which they have in place.
What is turnover?
a. Turnover is the total income for a financial year
Why does a company keep accounts?
a. Tax purposes
b. Legal and financial requirement to companies house every financial year
c. To track progress and performance
What is an escrow account?
a. A separate third-party bank account
b. Project bank account held between two parties
What are overheads?
a. A companies fixed costs of operating a business
i. Staff
ii. Rent
iii. Insurances
iv. Equipment
What is a current asset?
a. Asset which can be converted to cash within a year
What is a fixed asset?
a. Asset which isn’t likely to be converted to cash within a year
What are the signs of contractor insolvency?
a. Slowing down works
b. Overapplying for valuations
c. Reduced number of people on site
d. No progress on site
e. Site facilities not being maintained
f. Complaints from sub-contractors
When might a QS encounter insolvency?
a. Approached by a client whose contractor has ceased trading
b. Contractors having financial difficulties
c. Appointed by an external body
What is the difference between liquidation and administration?
a. Liquidation involves shutting down the business and selling off assets
b. Administration involves an administrator to manage company’s affairs on behalf of creditors
