Accounting Principles & Procedures

Question 1

IFRS?

Answer 1

International Financial Reporting Standards
- They constitute a standardised way of describing the company’s financial performance and position so that company financial statements are understandable and comparable across international boundaries.They are particularly relevant for companies with shares or securities listed on a public stock exchange.

Question 2

GAAP?

Answer 2

Generally Accepted Accounting Principle
Establishes how companies accounts must be reports in the UK - adds standardisation to the process.

Question 3

What is a Balance Sheet?

Answer 3

• Shows the financial position at point in time, and compares ASSETS vs LIABILITIES.
  Looks at the following;
• Assets - what the business ownsthat you get a future benefit from (property, brand).
• Current assets - Used within 1 year
• Non-current assets - Plant, machinery, equipment
• Liabilities - Amount owed

Question 4

What is on a Profit and Loss account?

Answer 4

• Financial statement comparing income and outgoings with adjustments for liabilities etc.
• To identify profit and loss over a specific period.
• Liabilities greater than assets - business goes into administration

Question 5

What does a Cash Flow statement show?

Answer 5

Shows how changes to balance sheet and income effect cash and breaks the analysis down to operating, investing and financial activities

Question 6

Management vs Company accounts?

Answer 6

Management - Used internally by managers
Company - Financial accounts required by law and audited by Chartered Accountant

Question 7

Companies Act 1985 - what does this require firms to do?

Answer 7

File financial accounts yearly

Question 8

Capital Expenditure vs Revenue Expenditure

Answer 8

• Capital is expenditure on build projects. Generally they are typically one time large purchases.
• Revenue costs are regular ongoing costs such as staff costs, rent. Generally they are ongoing operating expenses.

Question 9

Gross vs Nett

Answer 9

• Gross is all costs
• Nett is the lowest, after all deductions (retention etc)

Question 10

Management vs Company Accounts

Answer 10

Management - Used internally
Company - financial accounts required by law

Question 11

What is included in a Financial Account?

Answer 11

Reporting and summarising company transactions from business operations over a period of time.
Submitted yearly are
- balance sheet
- profit and loss statement
- executive summary
- notes

Question 12

If a client was concerned about a companies financial standing, what would you do?

Answer 12

Understand what the client wants in terms of financial checking, a few suggestions would be;
- Check Balance Sheet
- Dun & Bradstreet check
- PQQ

Question 13

What would you put on a PQQ?

Answer 13

• Company Information
• Economic and Financial standing
• Technical and professional ability
• Work Capacity, likeliness to be interested
• Staff information (CV’s)
• Project specific questions
• Health and Safety
• Quality assurance / Case studies

Question 14

What would you see on a credit check / Dun & Bradstreet check?

Answer 14

Example of credit check - Equifax, Experian, TransUnion
- Financial Health Rating
- Financial Health Information - how many claims. Aged debt past 90 days.
- Recommendation Credit Limit
- Company Details

Question 15

Difference between liquid and non-liquid asset?

Answer 15

Liquid - can turn into cash quick
Non-Liquid - Can’t