Accounting Principles & Procedures Flashcards
What is a profit and loss account?
A document that gives an indication of the financial health of a business over a period of time, usually a year.
What is a balance sheet?
A document that shows a company’s assets and liabilities at a point in time.
What is the difference between a profit and loss statement and a balance sheet?
Profit and loss account indicates the financial health over a period of time, whereas a balance sheet shows it at a point in time.
What are current and non-current assets?
Current assets are ones that can be cashed in short term e.g. stocks and shares.
Non-current assets are ones that take longer to cash in e.g. property.
What is a cashflow?
A graph that shows the movement of cash inflows and outflows through a company’s account.
What does a cashflow show?
Used to measure how secure a company is financially.
Why is a cashflow important for construction projects?
Gives the client an understanding of their financial commitment over the duration of a construction project and when they are likely to spend money.
Can be used to estimate when external funding is required.
Acts as a check against valuations.
Can give an early indication of contractor financial difficulties.
Why are you not able review financial statements?
It is not in my scope of service.
I am not covered by PI insurance for this.
Why is it important to have a company’s financial standing assessed?
To understand how stable they are financially; whether they are growing or declining.
What is the difference between management accounts and company accounts?
Management accounts are for the company’s internal use.
Company accounts are required by law and are public.
What was G&T’s turnover last year?
£292 million
Up by 6.4%
What’s the difference between a company cash flow and a project cash flow?
Company cashflow shows the incomings and outgoings from a company’s account.
Project cashflow shows the apportion of the value of packages over a construction programme
What is VAT?
Value Added Tax which is added to most good/services.
What is turnover?
Income / revenue that a company receives from its business activities.
What are business overheads?
Indirect cost or fixed expenses of operating a business.
Give me 3 examples of business overheads?
Rent / leasing costs.
Utility bills
Staff salaries
Insurance
What are the core financial statements that companies might produce?
Profit & loss account.
Balance sheets.
Cashflow forecasts.
Name the 3 types of accounting ratios.
Liquidity ratio.
Profitability ratio.
Gearing ration.
Explain what a liquidity ratio means?
The organisation’s ability to turn assets into cash to pay debts.
Explain what a profitability ratio means?
Asses a business’ ability to generate earnings relative to its revenue, operating costs, balance sheet assets or shareholder’s equity over time.
Explain what a gearing ratio means?
Measures the proportion of a company’s borrowed funs to its equity i.e., shows the financial risk to which a business is subjected.
What is an escrow account?
A type of legal holding bank account for monies which cannot be released until pre-agreed conditions have been met.
What is expenditure?
Represents payments made to purchase goods / services.
What is capital expenditure i.e., CAPEX?
Spending to acquire or improve an asset, such as equipment or buildings.
What is operating expenditure i.e., OPEX?
Operating expenses are costs incurred in the day-to-day running of the business.
E.g. buying spare parts, servicing a machine.
Give me 3 examples of an Asset.
Buildings, land, equipment owned by the company.
Give me an example of a liability.
A loan or debt.
What is insolvency?
A company’s inability to pay off debts owed.
Why would you not recommend appointing a contractor with a low credit score?
Risk of insolvency.
Contractor not performing satisfactorily.
How can you determine the financial standing of a company before doing business with them?
Extract financial info and send to the client’s appointed lawyers.
They can undertake a Dun & Bradstreet credit check.
Name 3 signs of contractor insolvency.
Slowing down works.
Supply of materials drying up.
Increase in defective work.
Changes in management.
Additional or inflated payment requests.
Complaints from subcontractors re. late / absent payments.
What steps should you take in the event of contractor insolvency?
- Inform all parties and secure the site.
- Inform the bondsman / insurer.
- Stop any pending payments.
- Take ownership of any materials offsite.
- Schedule all plant and materials.
- Value completed works and value any defects.
- Monitor L&E incurred by the Employer.
- Terminate the building contract and appoint a new contractor to complete the works.
