Accounting Principles & Procedures Flashcards
What is a profit and loss account?
Shows the incomes and and expenditures of a company and the resulting profit or loss.
What is a balance sheet?
Shows what a company owns (assets) and what it owes (liabilities) at a given point in time. Usually over 1 year.
What is a cash flow statement?
Summary of the actual or anticipated ingoings and outgoings of a firm over the accounting period.
Measures short term ability to pay off bills.
Can you explain the difference between management and financial accounts?
Management Accounts - for the internal use of the management team.
Financial Accounts - Company accounts that are required by UK law.
Why does a chartered surveyor need to understand company accounts?
- Can aid in preparing their own accounts.
- Assessing financial strength of contractors.
- Assessing competition.
What are capital allowances?
Tax relief on certain items purchased by a company e.g. tools and equipment.
What are sinking funds?
Funds set aside for the payment of long term debts or future costs e.g. maintenance.
What is insolvency?
Inability to pay off debts, liabilities exceed assets.
What is Companies House?
An agency which incorporates and dissolves limited companies within the UK.
What is HMRC?
His Majesties Revenues & Customs.
What are liquidity ratios?
Liquidity ratios measure the ability of a company to pay off their debts.
How would you calculate liquidity ratios?
Current Assets / current liabilities
Ratio should usually be around 1.5, depends on sector of work. Ratio less than 0.75 could be an early indicator of insolvency.
What are profitability ratios?
Profitability ratios measure the performance of a company in generating profits.
How would you calculate profitability ratios?
(Turnover - cost of sales) / turnover
Low margins may be due to a growth strategy and not always a sign of bad management.
Can you explain the difference between debtors and creditors?
Creditors are business entities which are owed money by by another entity e.g. you are OWED money for a service.
Debtors are business entities that owe money to another company e.g. you OWE money to a sub-consultant for their services.
