Accounting Principles Flashcards
What is a balance sheet?
A financial document designed to communicate exactly how much a company is worth.
Shows the value of everything the company owns, owed and is owed. Gives the value of the business at any given point in time.
What is a profit and loss account?
Shows company sales, running costs and profit/loss over a financial year or set period.
Can be used to identify non profitable work. Shows outcome of business activities during an accounting period.
What does a business need to submit to HMRC?
- Balance Sheet
- Profit and Loss Account
- Notes on the accounts
- Directors Report
What’s the difference between management accounts and financial accounts?
Management Accounts - Internal accounts used for the management of the business monitoring money and performance across the year.
Financial Accounts - Published externally and submitted to HMRC.
What is a cash flow?
Summarises the amount of cash entering and leaving a company.
This would typically take on an S curve on a graph over the duration of a project with peak spend at the mid construction period.
What business management systems does your company use?
- Timesheets
- Project Summary Reports - staff allocated, total fee, remaining fee, hours used and hours remaining (fee balance).
- Internal databases
What is capital expenditure?
One off expenditure that results in acquisition, construction or enhancement of significant fixed assets that will be of benefit for more than one financial year.
What are capital allowances?
Capital allowances are a form of tax relief that can be deducted from taxable profits and relate to the cost of assets such as plant and machinery.
What is revenue?
The total amount of income generated by the sale of goods or services related to the primary operations of the business.
What is a liquidity ratio?
Measures the ability of a company to pay off current liabilities by converting assets to cash.
What is a current ratio?
Assets divided by current liabilities. Expected to be around 1.5 dependent on size of business. Less than 0.75 suggests insolvency.
What is an Acid Test?
The value of a businesses assets that can b turned to cash within 30 days.
What is a gearing ratio?
Measures financial leverage, how much of a firms operations are funded by equity against how much is debt financing.
What is a profitability ratio?
Measure the ability of a company to generate profit.
