Sams Accounting Principles and Procedures

Question 1

What is cooperation tax

Answer 1

Tax paid by businesses in the UK
Calculated on their annual profit

Question 1

What is VAT

Answer 1

Value added Tax - its a consumption tax placed on produced whenever value is added at each stage

Question 2

What is an audit

Answer 2

Process to check a person or companies compliance with procedures

Question 3

What is turnover

Answer 3

Income or revenue from business activities

Question 4

What are management accounts

Answer 4

Accounts prepared for internal use by management, not audited externally.

Question 5

Whats the difference between management and financial accounts

Answer 5

Financial accounts ; for external stakeholders
Management accounts ; for internal use

Question 6

Why does a business keep company accounts

Answer 6

Tax
Demonstrates companys financial standing
Ensure profits and cash flow are managed correctly.

Question 7

What is an escrow account

Answer 7

a seperate account owned by a third party

Question 8

What is a project bank account

Answer 8

ringfenced bank account
Ensures contractors / sub contractors are paid on the contractually agreed dates

Question 9

What are overheads

Answer 9

indirect costs or fixed expenses relating to operating a business
- rent
- utility bills
-salaries

Question 10

What is Tax Depreciation

Answer 10

a depreciation expense claimed by the taxpayer on a tax return to compensate the loss in the value of the asset

Question 11

Name 3 types of accountancy rations

Answer 11

Liquidity ratios : ability to turn assets into cash
Profitbaility ratio : used to assess a business’s ability to generate earnings relative to its overheads
Gearing ratio : measured proportion of companys borrowed funds to its equity.

Question 12

What are capital allowances

Answer 12

practise of allowing taxpayers to get tax releif on their capital expenditure by allowing it to be deducted against their annual taxable income

Question 13

Whats the difference between gross and net

Answer 13

Gross: is income before deductions
Net is income after deductions

Question 14

Whats capital expenditure

Answer 14

expenditure to aquire or improve an asset e.g equipment or buildings

Question 15

Whats operational expenditure

Answer 15

day to day running costs - services , spare parts etc

Question 16

What is a balance sheet

Answer 16

A balance sheet is a snapshot of a company financial standing
it reports on company assets , liabilitys and equity

Question 17

what is a current asset

Answer 17

cash and other assets that are expected to be converted to cash within a year

Question 18

what is a fixed asset

Answer 18

an asset used for more long term outlook , not likely to be converted to cash within a year

Question 19

What is a cashflow forecast

Answer 19

it is a forecast which tracks money going in and out of a business over a certain period of time.

it helps understand when money will enter and leave your account.

Question 20

What is a cashflow forecast used for

Answer 20

-Understand impact on future plans and possible outcomes
-Keep track of overdue spending
-Plan for upandcoming cash gaps

Question 20

Why are cashflows important for construction projects

Answer 20

-it allows the client to understand their financial commitment over the duration of the project.
- Can be used to assess if external funding is needed
-gives early indications of any financial difficulties

Question 21

What is a profit and loss account

Answer 21

shows a companies revenue and expenses over a particular period of time.

Shows if a business made a profit or a loss

Question 22

Whats the difference between a profit and loss and a balance sheet

Answer 22

Profit and loss : show if a business made a profit over a set period

Balance sheet : Shows companies financial standings on things such as assets liabilities and equities.

Question 23

What is insolvency

Answer 23

a company or a persons inability to pay their debts.

Question 24

What steps would you take in the event of contractor insolvency

Answer 24

• Inform all parties and secure site
• Inform bondsman if there is one
• Stop pending payments
• Take ownership of any materials on or offsite that have been paid for.
• Value completed works and produce a nominal final account
• Monitor the loss and expense of the employer
• Terminate the building contract.

Question 25

What are the signs of contractor insolvency

Answer 25

Slowing down of work
Supply of materials drying up
Additional or inflated payment requests
Complaints from subcontractors

Question 26

Whats the difference between liquidation and adminstration

Answer 26

Administration is where someone is appointed to manage the company affairs on behalf of the creditors

Liquidation involves shutting the company down and selling assets.