Accounting Principles & Procedures

Question 1

What are the principles of accounting?

Answer 1

Used to account for things and used to evaluate a company’s financial position and make business decisions.

Question 2

What is a profit and loss statement?

Answer 2

Profit and loss statement – summarises income and expenses.

shows if the company is profitable

Question 3

What is a Statement of Financial Position?

Answer 3

Statement of financial position – reports on a companies assets, equities and liabilities.

(long term picture)

Formerly called Balance Sheets.

Question 4

What is a cash flow statement?

Answer 4

Cash flow statement – for monitoring/reviewing cash movements.

A cash flow statement is a financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company.

The cash flow statement measures how well a company manages its cash position, meaning how well the company generates cash to pay its debt obligations and fund its operating expenses.

The cash flow statement complements the statement of financial position and profit/loss statement and is a mandatory part of a company’s financial end of year reports.

Question 5

What is Company/Audited accounts?

Answer 5

Audited accounts – legal requirement. Done by a chartered accountant.

They include:
Profit/Loss statements
Statements of Financial Position
Cash Flow statements.

Question 6

What is managed accounts?

Answer 6

Management accounts – in house purposes to aid with business forecasting and decisions.

Question 7

Whats the difference between Company/Audited and Managed accounts?

Answer 7

Management accounts are for in house business making decisions.

Company/Audited accounts are a legal annual requirement to be done by a chartered accountant.

Question 8

What are the documents firms must provide at the end of Year Company/Audited Accounts?

Answer 8

Profit and Loss Statements
Statement of financial position (balance sheets)
Cash flow statements

Question 9

Why do surveyors need to know about this?

Answer 9

For my own business accounts

For assessing covenant strength of Landlords and Tenants

Assessing financial strength of tender’s and contractors

Assessing competition

Question 10

What’s the difference between the GAAP (Generally Accepted Accounting Principles) and the IAS (International Accounting Standards)

Answer 10

1. GAAP are the more generic accounting rules that every country holds, and are directly influenced by the different accounting boards of each jurisdiction, whereas, IAS is the specific set of internationally recognised accounting standards, set by the IAS Committee.
2. GAAP, in itself, is locally based, while the IAS is globally recognised, and some of its rules or standards are incorporated in the GAAPs of many countries.

Question 11

Difference between Gross and Net?

Answer 11

In salary terms, Gross is the total salary and net is salary minus tax and all other deductions (the net cannot get any lower)

Question 12

What is depreciation?

Answer 12

Depreciation is the systematic reduction in the recorded cost of a fixed asset. Examples of fixed assets that can be depreciated are furniture and IT equipment.

Question 13

Difference between Sole Trader, Limited, Partnership and LLP?

Answer 13

• Sole Trader
  A person who is the exclusive owner of a business, entitled to keep all profits after tax has been paid but liable for all losses (unlimited liability).
• Partnership
  A business organization in which two or more individuals manage and operate the business. Both owners are equally and personally liable for the debts from the business.
• Limited
  In a limited company, the shareholders’ liability is limited to the capital they originally invested. If such company becomes insolvent, the shareholders personal assets remain protected. Shares in a private limited company are not offered to the general public (distinguishing it from a public limited company - plc.)
• Limited Liability Partnership (LLP)
  A limited liability partnership (LLP) is a partnership in which some or all partners have limited liabilities. It therefore exhibits elements of partnerships and corporations. In an LLP, one partner is not responsible or liable for another partner’s misconduct or negligence.

Question 14

What is Insolvency?

Answer 14

The inability to pay debts

Question 15

What are the different types of insolvency?

Answer 15

1) Administration

2) Liquidation

Question 16

What is Administration?

Answer 16

• Company is operated by an Administrator
• Options are sought to avoid Liquidation`
• If no options, the company is wind up.

Question 17

What is Liquidation?

Answer 17

• Company ceases trading
• Assets are sold in order to offset liabilities
• Wind up firm

Question 18

Where does the Client or Contractor fall in relation to receiving monies after liquidation?

Answer 18

Very low on the scale.

Both are considered unsecured creditors

List is as follows:

1. Secure creditors (Banks, financial institutions etc)
2. Preferential creditors (Statutory payments)
3. Floating charges set by Secure Creditors (become fixed/crystallised)
4. Unsecure creditors (Suppliers, contractors, HMRC etc)
5. Connections (family members, associates etc)

Remember “Quistclose Trust”

Question 19

What do you do if a Contractor/client becomes liquidated during a project?

Answer 19

BOTH:

1. Inform interested parties.
2. Stop payments
3. Secure the works
4. Arrange insurance for the works
5. Confirm termination

Contractor insolvency:

6. Carry out remainder of works
7. Prepare statement of actual costs of works when completed (incl additional fee’s etc).
8. Pay/recover outstanding monies if above or below sum.

Client insolvency:

6. Carry out an accurate survey/valuation of outstanding/completed works.
7. Pay any outstanding payments.

Question 20

What is a bond?

Answer 20

A bond is a kind of an insurance usually provided by a bank or surety company which guarantee’s to pay an amount on the occurrence of an event.

Therefore a Performance Bond guarantees to pay the employer on the event a contractor is terminated.