Accounting Principles & Procedures

Question 1

purpose of company accounts?

Answer 1

• Monitor financial movement and allow for reporting on current progress.
• Allows QS to monitor the financial strength of contractors/employers.

Question 2

Purpose of statutory accounts?

Answer 2

A company’s accounts required by law.

Prepared from the company’s financial records at the end of the financial year.

Must be sent to: Shareholders, Companies House and HMRC as part of the tax return.

Question 3

what is a profit and loss statement?

Answer 3

Financial statement of income and expenditure over a reporting period

• Revenue
• Expenses
• Gains
• Losses

Question 4

what is a balance sheet?

Answer 4

• Indicates the assets and liabilities a company had and how it is funded at a single point in time.
• Must have the name of a director printed on it and must be signed by a director.

Question 5

What is companies house?

Answer 5

Online portal which details information about Registered Companies:

Includes:
o Profit and loss statements
o Company status
o Directors/Secretaries of the company

Question 6

what is a cash flow statement?

Answer 6

Financial statement that shows the amount of cash and cash equivalents entering and leaving a company.

Question 7

what is capital expenditure?

Answer 7

• Funds used by a business to acquire, upgrade, or maintain long-term physical assets, such as property or equipment.

Question 8

what is revenue expenditure?

Answer 8

Revenue expenditure refers to short-term expenses incurred by a business for day-to-day operations, such as rent, utilities, and salaries, which are fully deducted in the accounting period they are incurred.

Question 9

what is insolvency and what are the the signs?

Answer 9

Inability of an organisation to pay its debts.

 Highly geared and reliance on loans
 Slow progress on site
 high interim applications

Question 10

what are the employers actions if a contractor was to go insolvent?

Answer 10

 Secure the site and materials associated
 Stop all outgoing payment
 Take a valuation of the works carried out to date

Question 11

what is a Dun & Bradstreet check?

Answer 11

• Database contains more than 290 million business records worldwide including commercial data, analytics and insights for businesses.

Question 12

What is the difference between a balance sheet and profit and loss statement?

Answer 12

• The Balance Sheet is a statement of assets, liabilities and capital, whereas the Profit and Loss account is a statement of income and expenses.

Question 13

What are capital allowances?

Answer 13

• Capital allowances are a type of tax relief for businesses.
• They let you deduct some or all of the value of an item from your profits before you pay tax.

Question 14

What is included in a dun and Bradstreet report?

Answer 14

A D&B report typically has three main scores that assess:

• Business credit score, which includes the PAYDEX score.
• Commercial credit score.
• Financial stress score.

Question 15

What is insolvency?

Answer 15

When an individual or company can no longer meet their financial obligations to lenders as debts become due.

Question 16

When is corporation tax taken and how is shown on a balance sheet?

Answer 16

Corporation tax is generally due 9 months and 1 day after the end of the company’s accounting period.

If the tax is due but not yet paid, it is shown as a current liability

Question 17

What is VAT Payable and when is it payable?

Answer 17

VAT Payable is the VAT a business owes to HMRC after collecting VAT on sales (output tax) and deducting VAT on purchases (input tax).

VAT registration is required if taxable turnover exceeds £85,000 in a 12-month period.

Question 18

What is turnover?

Answer 18

Turnover is the total revenue a business earns from sales of goods or services over a specific period, excluding VAT and non-trading income.

Question 19

What is the difference between a management account and company accounts?

Answer 19

Management Accounts: Internal financial reports prepared regularly (usually monthly or quarterly) to help management make decisions. They provide detailed, up-to-date financial information, including forecasts and performance metrics.

Company Accounts: Annual financial statements (including the balance sheet, profit and loss statement, and cash flow statement) that are prepared in accordance with legal and accounting standards. These are typically for external use, such as for investors, tax authorities, and regulators.

Question 20

What types of business status are there in the U.K.?

Answer 20

Sole trader.
Partnership.
Limited liability partnership.
Limited company.

Question 21

What is the difference between an LLP and Ltd.?

Answer 21

LLP: Partners, flexible profit-sharing, personal tax.
Ltd: Shareholders, fixed profit distribution, corporate tax.

Question 22

What is PLC?

Answer 22

Shares traded publicly on a stock exchange.
Minimum capital of £50,000 (in the UK).
Limited liability for shareholders.
Must follow strict financial reporting and governance rules.

Question 23

What is a financial ratio?

Answer 23

Profitability (e.g., gross profit margin)
Liquidity (e.g., current ratio)
Efficiency (e.g., inventory turnover)
Solvency (e.g., debt-to-equity ratio)

Question 24

What is the time frames for a P&L and a balance sheet?

Answer 24

P&L - Financial year / 12months
Balance Sheet - Any fixed point in time