Accounting principles L1 Flashcards
What are the key financial statements that companies need to provide?
-Profit and loss accounts
-Balance sheets
-Cash flow statements
What is the difference between management accounts and financial accounts?
-Management accounts are for the intenal use of the management team
-Financial accounts are the company accounts required by UK law
What is the difference between a profit and loss account and a balance sheet?
- A profit and loss account shows the incomes and expenditures of a company and the resulting profit and loss
-The balance sheet shows what a company owns (assets) and what it owes (liabilities) at a given point in time
What is a cashflow statement?
Summary of the actual or anticipate d ingoing and outgoing of cash in a firm over the accounting period- measures the short-term ability of a firm to pay off its bills
What are capital allowances?
Tax relief on certain items purchased for the business e.g. tools & equipment
What are sinking funds?
funds that are set aside for future expense or long term debt
What is insolvency?
An inability to pay debts where liabilities exceed assets
What is companies house?
An agency that incorporates and dissolves limited companies within the UK
What is the HMRC?
Her majesties revenue and customs
What are liquidity ratios?
Measure the ability of a company to pay off its current liabilites by converting assets in to cash.
Current assets/current liabilites
usually around 1.5
What are profitability ratios ?
Measure the perforamnce of a company in generating its profits
Trading profit margin ration=turnover-cost of sales
Low margins may be due to growth strategy, not always bad management
What are financieal gearing ratios?
Measure the financial structure of the company including solvency
Why do chartered quantity surveyors need to understand and be able to interpret company accounts?
-Aid in preparing own buisness accounts
-Assesing financial strenght of contractors and tendering for contracts
- Assesing competition
Whats is the purpose of profit and loss accounts?
-Monitor and measure profit based performance
-Compare against past perfromance and budgets
-For valuation purposes
-Assist in forecasting future performance
What is the difference between debtors and creditors?
Creditors are business entities that are owed money by another entity they have extended credit to
Debtors are business entities that owe money to another respective company
What are management accounts?
Accounts prepared by a company for internal management use
Accounts prepared for a lender to evaluate if you will be able to repay any funding
Not audited
What is a financial statement?
Forecasts of income and expenditure that can be used to identify shortfalls
What is a profit and loss account?
They demonstrate a companies sales, running costs and profit or loss over a financial period (usually a year)
They are used to show sales vs expense
They can be used to show sales vs expense
They can also b eused to identify non profitable work