Accounting

Question 1

What is insolvency

Answer 1

Inability to pay debts owed

This triggers a process where the company’s assets are liquidated to repay creditors, and the company is typically closed down.

Question 2

Red flags for contractor insolvency

Question 3

What must company accounts include

Answer 3

1. P&L - Revenue-expenses incurred during a specified period
2. BALANCE SHEET -
   Show companies assets (what it owns) liabilities (what it owes) at a specific point in time
3. NOTES TO THE ACCOUNTS

Accompanies by
Directors report
Business review (unless small)
Auditors report- to verify

Small:

Question 4

Gross profit
Net profit

Answer 4

Gross: Revenue - cost of goods sold
Net (bottom line) total revenue - total expense

Question 5

Why did you need to separate capital and revenue spend

Answer 5

Because companies get capital allowances(tax relief)

Question 6

What are the company accounts

Answer 6

Financial record of summary of a company’s business activity over the previous 12 months

Every year UK conmpanies have to submit company accounts to companies house.

Non compliance = company doesn’t exist & strike from register = assets are crown property

Question 7

Gross profit
Net profit

Answer 7

Gross profit on a product is the selling price of your product minus the cost of producing it.

Net profit is the selling price of your good minus ALL the costs of running your business. This is the figure that we usually mean when we refer to profit Net profit includes the same costs as your gross profit AND your overheads

Question 8

What’s a balance sheet

Answer 8

It is a snapshot of the financials at a point in time. It shows the company’s assets and liabilities which in turn can show the liquidity of the business.

Question 9

What would you check to see how a contractor is performing financially

Answer 9

I would check their financial accounts, cash flow and profit and loss account on Companies House. The profit and loss account to check whether the business is running at a profit. I would also check their cash flow to establish whether the business is struggling. If more money is going out than coming in, there is concern that they are struggling. There are limitations as it is all the past track record and not entirely current. I would also check the past 3 years to show progression.
I would then undertake a credit check using Dunn and Bradstreet or Experian which gives the business a credit score detailing the risks.

Question 10

What is cash flow forecasting

Answer 10

Summarises that amount of cash entering and leaving the project

On construction projects they usually show an S curve.
Cost v time