General

Question 1

What is VAT

Answer 1

Value Added Tax

Question 2

What is an audit?

Answer 2

• Process used to check a person or companies compliance with policy, procedure & compliance with regulation
• Performed to ascertain the validity and reliability of information

Question 3

What is turnover?

Answer 3

• Income or revenue that company receives from its normal business activities
• Usually from sale of goods and services to customers

Question 4

What are management accounts?

Answer 4

Accounts prepared by company for internal management use, or accounts prepared for a lender such as a bank to evaluate how business will repay funding.
Management accounts will not be audited externally.

Question 5

What is difference between management and financial accounts?

Answer 5

• Financial accounting is meant for external stakeholders
• Management accounting is presented internally

Question 6

Why does a business keep company accounts?

Answer 6

• Tax purposes (required by law)
• Demonstrates the company’s financial standing (supports loan or borrowing applications)
• Ensure cash flow and profitability is being correctly managed

Question 7

What is an escrow account?

Answer 7

• A separate account owned by third party, held on behalf of two other parties
• Can be used as a project bank account

Question 8

What is a project bank account?

Answer 8

• Ringfenced bank account
• Ensures contractors, key subcontractors and key members of the supply chain are paid on the contractually agreed dates
• Usually, mechanisms are in place for the release of funds (payment certs)

Question 9

What are overheads?

Answer 9

Indirect costs or fixed expenses of operating a business:

• Rent / leasing costs
• Utility bills
• Staff salaries
• Insurance

Question 10

Explain the principle of tax depreciation?

Answer 10

Tax depreciation is the depreciation of expense claimed by a taxpayer on a tax return to compensate for the loss in the value of the tangible assets.
E.g. property, plant and equipment

Question 11

Name 3 types of accountancy ratios?

Answer 11

• Liquidity ratios - The organisations ability to turn assets into cash in order to pay debts
• Profitability ratios - Used to assess business ability to generate earnings relative to its revenue, operating costs, balance sheet assets, or shareholders equity over time, using data from a specific point in time
• Gearing ratio - Measures proportion of a company’s borrowed funds to its equity

Question 12

What is financial leverage?

Answer 12

• An investment strategy of using borrowed money
• Specifically, the use of various financial instruments or borrowed capital to increase the potential return of an investment

Question 13

What are capital allowances?

Answer 13

Practice of allowing taxpayers to get tax relief on their tangible capital expenditure by allowing it to be deducted against their annual taxable income.

Question 14

What are the key financial statements/documents that companies produce?

Answer 14

• Profit and loss account
• Balance sheet
• Cash flow forecast