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APC 2024 > Accounting Principles Lvl 1 > Flashcards

Accounting Principles Lvl 1 Flashcards

1
Q

What are the key financial statements

A
  • Profit and loss accounts
  • Balance sheet
  • Cash flow statement
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2
Q

What is the difference between management and financial accounts

A
  • Management are for internal use by the mgmt team
  • Financial accounts are the company accounts required by Companies Act 2014
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3
Q

What is the difference between a P&L and balance sheet

A
  • P&L shows income and expenditures of a company and resulting profit or loss
  • Balance sheet shows what the company owns and what it owes.
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4
Q

What is a cashflow statement

A
  • Summary of actual and anticipated ingoing and outgoings of cash in a firm over the accounting period
  • Measures short term ability of firm to pay bills
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5
Q

Explain your understanding of Capital allowances, sinking fund, insolvency

A

Capital allowances - Tax relief for certain purchases by businesses

Sinking fund - Funds set aside for future expenses

Insolvency - Liabilities exceed assets

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6
Q

What are liquidity ratios

A
  • Measures companies ability to pay of liabilities by converting assets into cash
  • Current assets / Current liabilities
  • Ratio around 1.5
  • Liquidity ratio of less than .75 can be early indications of insolvency
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7
Q

What is profitability ratio

A
  • Measures performance of company in generating profits
  • Net Profit / Total Revenue of Company
  • Margins are industry dependent
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8
Q

What are financial gearing ratios

A
  • Financial ratio that compares some form of capital or owner equity to funds borrowed by the company
  • Helps measure solvency
  • Highly geared rely on debt
  • Interest reduces profit
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9
Q

Why do chartered surveyors need to understand and interpret accounts

A
  • Aid in preparing own business accounts
  • Assessing financial strength of contractors and tenants
  • Assessing competition
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10
Q

What is the purpose of a P&L

A
  • Monitor and measure profit (Loss)
  • Benchmark
  • Valuation purposes and competitor analysis
  • Forecasting
  • Calculate tax
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11
Q

What’s the difference between debt and creditors

A

Cred - Owed money (extended credit)

Debtors - Owes money

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12
Q

What is a financial statement

A

Financial statements are written records that convey the business activities and the financial performance of a company

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13
Q

What is a profit and loss account

A

Demonstrates companies sales, running costs and profit and loss

  • Used to show sales v. expenses
  • Also identify non- profitable work
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14
Q

What is a balance sheet

A
  • Shows value of everything the company owns made up of assets and liabilities
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15
Q

What is a cash flow forecast

A
  • Details out the cash entering and leaving the business in a financial year
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16
Q

What is an S-Curve

A
  • S-Curve means ‘standard’ and refers to the shape of the expenditure profile when shown on a graph.
  • Start of project rate of exp is lower
  • As scheme progresses, the rate of expenditure will typically increase as more expensive components are installed M&E etc..
  • Towards the end the rate of expenditure will slow
17
Q

What are Escrow accounts

A
  • Separate account owned by a 3rd party, held on behalf of two parties
  • Defined contractual conditions for the release of funds
18
Q

When have you used company accounts in your work

A
  • Assess both contractors for works and tenants for letting and assignment
19
Q

How do you analyse a companies accounts

A
  • Clients accountant should do but I have carried out some simple ratios and overall commentary
20
Q

How do you carry out a credit check

A

I personally use search4less to get an understanding of the companies financials and there board makeup

21
Q

What are the signs of an insolvent company

A
  • Low credit
  • Liquidty ratio below .75
  • Falling working capital ratio = company may be taking on too many projects
  • Low return on equity
  • Highly geared
  • falling cashflow
22
Q

Why would you not recommend the appointment of a contractor with low crediting rating

A
  • Increased risk of poor performance
  • Increased risk of under resourced project
  • Poor materials used
  • Contractor insolvency
23
Q

What measures could you take if your client wants to go with a low credit rated contractor

A
  • Request a performance bond
  • Review tender submission to ensure it’s not excessively front loaded
  • Project bank account
24
Q

What is GAAP/IFRS

A

GAAP and IFRS are two important sets of accounting standards that companies use to prepare their financial statements. Here’s a breakdown of each:

GAAP (Generally Accepted Accounting Principles): This is the common standard for financial reporting in the United States. It’s a rule-based system, meaning companies must follow specific guidelines for accounting practices. The Financial Accounting Standards Board (FASB) sets these standards.

IFRS (International Financial Reporting Standards): This is a set of international accounting standards used by many countries outside the US. It’s a principles-based system, which means it provides more general guidelines rather than strict rules. The International Accounting Standards Board (IASB) develops these standards.

25
Q

What is Gross Profit

A

Revenues less cost of goods
Profit before operating expenses/ interest / taxes

26
Q

Net profit

A

Profit after operating expenses, tax, interest

27
Q

What is Capital expenditure

A

Assets employed in a buisness

28
Q

What is revenue expenditure

A

Repair and maintenance / wages / rent

29
Q

What is liquidity

A

How much cash is available
Assets easily sold

30
Q

Profit margins

A

GROSS PROFIT = NET SALES - COGS / NET SALES

31
Q

Operating profit

A

= GROSS PROFIT - OPERATING EXPENSES - DEPRECIATION AND AMORTISATION

32
Q

Gearing

A

Debt to equity = Total debt / Total Equity *100

33
Q

ROE

A

NET INCOME / SHAREHOLDER EQUITY

HOW MUCH THE BUSINESS IS ACHIEVING OF NET PROFIT IF COMPARED TO NET WORTH OF BUSINESS

APC 2024 (17 decks)

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