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RICS APC > Accounting Principles > Flashcards

Accounting Principles Flashcards

1
Q

What is VAT?

A

VAT is value added tax, which is tax added to goods and services

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2
Q

What is corporation tax?

A

Corporation tax is paid by UK businesses, which is calculated on their annual profit

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3
Q

What is the GAAP?

A
  • Generally accepted accounting principles
  • Set out the accounting standards for the sharing of accounting information within the UK
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4
Q

What is the IAS?

A

A set of international accounting standards to promote transparency, accountability and efficiency in financial markets around the world 

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5
Q

What is the role of an auditor?

A

An auditor insures a company is compliant with procedures and policies

Audits can be undertaken on company’s accounts and quality management systems

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6
Q

What is an audit?

A

An audit is an inspection by an auditor to check accompanies compliance with policies and procedures

Different types of audits include quality system audit and financial account audit

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7
Q

Why is it important to undertake audits?

A
  • Improves efficiency of operations
  • Evaluate risks
  • Ensures legal compliance
  • Can be a requirement to continue compliance with financial and quality management systems
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8
Q

What would happen if an auditor found a problem with something in the company’s accounts?

A
  • can stop company activities until the issue is resolved, especially if it was a legal requirement
  • Can recommend ways in which the company can improve its methods to comply with policies and procedures
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9
Q

What is turnover?

A

Turnover is how much income of business has made, usually from the sales of goods and services

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10
Q

What is the difference between management and financial accounts?

A
  • management accounts are presented internally
  • Financial accounts are meant for external stakeholders
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11
Q

Why do businesses keep accounts?

A
  • Tax purposes
  • Demonstrates a company’s financial standing, for things such as loans
  • To show solvent, profitability and helps maintain an accurate cash flow
  • A legal requirement for HMRC
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12
Q

What is an escrow account?

A

An escrow account is a separate account owned by a third-party, held on behalf of two other parties

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13
Q

What is a project bank account?

A

A project bank account is a Ring fenced account that is used to ensure contractors, subcontractors and members of the supply chain are paid on contractually agreed dates

Mechanisms, such as payments certificates, are used to release the funds

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14
Q

What are overheads?

A

Overheads are the indirect costs of operating a building. Examples include:
- Rent
- Utilities
- Staff costs
- Insurances

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15
Q

What is a ratio analysis and why is it useful?

A

Ratio analysis is a way to analyse a company’s accounts

A ratio analysis is used to evaluate various aspects of a business’ operating and financial performance, such as liquidity, profitability and solvency

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16
Q

What are the three types of accountancy ratios?

A

Liquidity: to show the organisations ability to liquidate assets in order to pay debts

Profitability: to demonstrate the profitability of a business using balance sheets

Gearing: demonstrates how much debt accompany has against how much equity it has

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17
Q

What is financial leverage?

A

The use of borrowed funds to invest, to increase the potential return on investment

18
Q

What is return on investment?

A

The amount of money that could or has been returned, after you’ve made an investment

19
Q

What are capital allowances?

A

Capital allowances are a type of tax relief. Businesses can claim when they invest in long-term assets.

Capital allowances allow you to deduct part, or all, of the assets value from profits, therefore paying less tax

20
Q

What is the difference between gross and net?

A

Gross: refers to the total amount of income before deductions

Net: the total after deductions

21
Q

Why is it beneficial for surveyors to understand company accounts?

A
  • Helps with assessing the financial health of tendering contractors
  • Can help in preparing company accounts within their own surveying practice
  • Can assess the financial health of competing surveying practices
22
Q

Why are CAPEX and OPEX split out in business accounts?

A

They have different tax obligations, for example, CAPEX can benefit from capital allowances

23
Q

What is a balance sheet? What does it show?

A

A balance sheet is a snapshot of the companies financial position at anyone given time.

It reports the companies assets, liabilities, and ownership equity.

Balance sheet can demonstrate a company solvency at one point in time

24
Q

What is a current asset?

A

Current assets is cash, and anything that can be expected to be converted into cash within a year

25
Q

What is a fixed asset?

A

I fixed asset is something that is not likely to be converted into cash quickly, for example, buildings, land and equipment

26
Q

What is a cash flow?

A

Way of showing the expected income and expenditure of a business, over a given period of time

27
Q

Why are cash flows important for clients?

A
  • it can give the client an indication of the expected expenditure at each month
  • It can enable a client to budget for their financial year
28
Q

Why are cash flows important for contractors?

A
  • It can help them understand when money is due from the client and when they need to pay subcontractors in their supply chain
  • Can help them remain solvent by ensuring they are not paying all money out at once
  • Allows them to understand when they can procure materials and pay salaries
29
Q

How can a cash flow help accompany remain solvent?

A
  • can forecast whether the business or project has money to pay out, and when money is expected to be paid in
  • Can highlight if a business or project will have a negative cash flow, so they can do something about this in good time
30
Q

How would you create a cash flow before contractor came on board?

A

I would use an indicative program and align the cost estimate to show the anticipated expenditure for each month, and when activities are anticipated to be completed

31
Q

What items would you expect to find in a profit and loss account?

A
  • Incomings: sales and services
  • Expenditure: staff wages, rent and utilities

This would then provide a bottom line figure, showing a positive or negative number, therefore demonstrating a profit or loss

32
Q

What is the difference between a balance sheet and a profit and loss account?

A
  • Balance sheet is a financial snapshot to a companies financial position at any given time
  • Profit and loss account shows the profit or loss of business over a set period of time
33
Q

What is insolvency?

A

Insolvency is when a company can no longer meet their financial obligations and cannot pay their debtors

34
Q

What are the steps taken when a contractor becomes insolvent?

A
  1. Stop all payments to the contractor.
  2. Secure the site.
  3. Take possession of any offsite materials.
  4. Value the works completed.
  5. Inform the bondsman, if required
  6. Terminate the contract.
  7. Begin the process of appointing another contractor to complete the works.
35
Q

How could you determine the financial standing of a business before doing business with them. For example appointing a contractor for works?

A
  • I could undertake a Dunn & Bradsheet report
  • Undertake a credit check with an agency, such as Experian
  • Speak to colleagues & the supply chain
36
Q

What would you look for in a Dunn & Bradsheet report?

A
  • Risk assessment to show the overall health of the business
  • Maximum recommended value for the scheme
37
Q

What signs might be present for a contractor going insolvent?

A
  • Slowing down on site
  • Supply materials drying up
  • Increase in defective workmanship
  • Changes in management
  • Additional or inflated payment requests
  • Complaints from subcontractors
38
Q

Under what circumstances might a quantity surveyor encounter insolvency?

A
  • you may be approached by a client where a contractor has cease trading and they need advice
  • A contractor could become insolvent on one of your projects
  • You could be appointed by an external body to prepare a report on the commercial aspect of a project
39
Q

What is the difference between administration and liquidation?

A
  • Administration is where a body is appointed to manage companies affairs on behalf of the creditors
  • Liquidation involves the company shutting down and selling off its assets to pay its creditors
40
Q

What is bankruptcy?

A

Bankruptcy is a way for individuals to deal with debts. Their assets are shared amongst creditors, and it allows them to make a fresh start debt free (with some restrictions)

RICS APC (19 decks)

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