Accounting Principals Flashcards
What are management accounts?
Provide the financial information to manage, track and monitor the company’s performance. Prepared monthly or quarterly, can compare against previous performance and forecasts
What are company accounts?
Statutory accounts that must be submitted to HRMC at the end of the financial year which shows how a company has performed over the accounting period.
What accounts have to be published? (HMRC)
*Full statutory annual accounts:
- Profit and loss account
- A balance sheet
- Notes to the accountants
- A directors report
*A company tax return (corporation tax is tax on a businesses profits)
When do businesses need to register to VAT?
If their VAT taxable turnover is more than £90,000.
Why would you review accounts?
To allow management to compare performance against forecasts, enabling them to make strategic decisions in the short and long term.
To comply with HRMC requirements and therefore not incur penalties.
What are profit and loss statements and what can they tell you about a business?
Summarises the cost, revenue, expenses and profit and loss in a specific period. To compare against budget, used to forecast.
What are cash flow statements?
Indicates when cash is coming in (inflows) and also when cash is going out (outflows).
What are balance sheets and what can they tell you?
A statement that reports a company’s assets, liabilities and shareholder equity as a specific point in time. A snapshot of what it owns and owes. Can be used to calculate financial ratios.
Capital allowances?
Capital allowances are a type of tax relief for businesses. They let you deduct some or all of the value of an item from your profits before you pay tax. Ref plant and machinery
Are you aware of any ratios in regard to accounting?
- Liquidity ratios – ability of a company to pay off its current liabilities by converting its current assets into cash = current assets divided by current liabilities
- Profitability ratios – used to assess a company’s ability to earn profits from its operations, balance sheet assets, or shareholders’ equity. E.g. margin ratios and return ratios – to compare against other companies or the companies past performance
- Financial gearing ratios = total debt divided by total equity
Legislation?
Companies Act 2006
Why does a QS need to understand and be able to interpret company accounts?
Check contractors financial status, are they at risk of insolvency, mitigate risk of under performance, part of PQQ process, run credit check
How do you analyse accounts?
Advise not qualified, this is the role of a qualified accountant
Insolvency?
Inability to pay debts, companies may liquidate assets to pay debts or declare bankruptcy
