M - Accounting Principles and Procedures - TO COMPLETE

Question 1

What does a balance sheet identify?

Answer 1

Snapshot of company’s financial position at a given time
Reports assets, liabilities and ownership

Question 2

Can you explain to me what items build up a profit and loss statement?

Answer 2

Shows revenues and expenses over a particular period

Question 3

What would you expect to see on a company cash flow statement?

Answer 3

Money coming into and going out of the business through their main activities, i.e.

Incoming - monies paid into accounts from main service

Outgoings - rent, utilities, finance costs, costs of main activities

Question 4

What is insolvency?

Answer 4

Insufficient assets to discharge their liabilities

Question 5

What are potential signs of contractor insolvency?

Answer 5

• Contractor demanding swift payment, early release of retention.
• Subcontractors contacting your client directly; seeking payment
• overzealous / spurious applications for payment
• Withdrawal of labour, changes to key site individuals.
• Less frequent deliveries / removal of materials from site
• Slowdown in progress of work - behind on programme
• Rumours in the market

Question 6

Please explain your understanding of domestic reverse charge

Answer 6

The (contractor) accounts for the VAT rather than the (subcontractor)

Question 7

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

Answer 7

• Balance sheet summarizes the financial position of a company for one specific point in time, including in goings, outgoings, liabilities and assets.
• P&L statement shows revenues, expenses and profit during a set period of time

Question 8

What is the difference between tangible and intangible assets?

Answer 8

• Tangible assets - Physical items owned e.g. land, buildings, FF&E
• Intangible assets - Dont physically exisit e.g. trademarks, patents, investments.

Question 9

What is the Liquidity Ratio?

Answer 9

• Ratio of current liquid assets compared to the company’s liabilities
• Demonstrates the company’s ability to pay its current debt obligations
• Shows margin of safety
• Ratio should be 2:1

Question 10

What financial report may you request to demonstrate company’s financial position?

Answer 10

Dun and Bradstreet Report - Market leader, comprehensive overview with experience and understood

Question 11

What is the Construction Industry scheme (CIS)

Answer 11

• Created by HM Revenue & customs for tax from Contractors & sub-contractors
• Designed to minimize tax invasion
• Contractors deduct tax from payment to sub-contractors, contractors & sub-contractors must register with the scheme

Question 12

Where would be the best place to find out about the financial background of a company?

Answer 12

Companies house

Question 13

If a contractor issues a cashflow and it is wildly different to previous forecasts, what would you do?

Answer 13

TO COMPLETE