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RICS EPA Revision > Accounting Principles > Flashcards

Accounting Principles Flashcards

(44 cards)

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1
Q

How is IAS (IFRS) different from GAAP?

A

IAS is more principles-based, GAAP is more rules-based

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2
Q

What do IAS and GAAP stand for?

A

International Accounting Standards and Generally Accepted AccountinG Principles

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3
Q

Which framework is IAS a part of?

A

IFRS - International Financial Reporting Standards

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4
Q

What is double entry bookkeeping?

A

Every financial transaction shows it is debited and credited. This helps prevent fraud and is easier to spot mistakes.

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5
Q

What is the accounting equation?

A

Assets = Liabilities + Equity

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6
Q

What are the Basic Accounting Concepts?

A
  1. Accruals
  2. Consistency
  3. Prudence
  4. Going concern
  5. Realisation
  6. Matching concept
  7. Materiality
  8. Objectivity
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7
Q

What is an Income Statement (Profit and Loss)?

A

A financial report which shows a company’s profitability over a specific period, used to determine its financial performance.

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8
Q

What is shown on an Income Statement (Profit and Loss)?

A

Cost of goods sold (COGS), gross profit, Operating expenses, operating profit (gross profit less op ex), other income I.e. interest, net profit/loss

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9
Q

What are some standard financial statements?

A

P & L, Balance sheet, Cash-flow statement

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10
Q

What is the difference between management and financial accounts?

A

Management are for internal use, Financial are company accounts required by law

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11
Q

Name some financial ratios

A

Profitability ratio, liquidity ratio, solvency ratio

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12
Q

What is CapEx and OpEx

A

Capital and Operational Expenditure

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13
Q

What’s the difference between P&L and Balance sheets

A

P&L shows incomes and expenditures and resulting P&L, balance sheet shows what a company owns (assets) and owes (liabilities)

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14
Q

What does a cash-flow statement show?

A

Short term ability to pay bills

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15
Q

What are Capital Allowances?

A

Tax relief on certain items purchased for business I.e. tools

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16
Q

What is a sinking fund

A

Funds set aside for future expense or long term debt

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17
Q

What is insolvency

A

Inability to pay debts where liabilities exceed assets

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18
Q

What is Companies House

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A

Agency which Incorporates and dissolves limited companies in the UK

19
Q

What is liquidity?

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A

Liquidity measures ability of a company to pay off its liabilities by converting assets to cash

20
Q

What is the liquidity ratio?

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A

Liquidity = current assets/ current liabilities

21
Q

What is a good liquidity ratio?

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A

Depends on sector but usually 1.5. If under 0.75, risk of insolvency

22
Q

What is profitability?

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A

The performance of a company in generating profits

23
Q

What is the profitability ratio?

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A

Trading profit margin ratio= turnover - (cost of sales/ turnover)

24
Q

What are Financial Gearing Ratios?

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A

The measure of the financial structure of a company to help measure solvency

25
What level of borrowing would a highly geared company have?
High reliance
26
What are Management Accounts
Accounts for internal management use, prepared for a lender to evaluate how it will be able to repay
27
Are management accounts externally audited
No
28
What is a Financial Statement
Forecast of income and expenditure to identify potential shortfalls
29
What is a working capital ratio
the ratio of assets to liabilities, i.e. how many times a company can pay off its current liabilities with its current assets
30
What is an S curve
S=Standard. Shape of expenditure profile when shown on a graph
31
What does an S curve show
That initial expenditure is less on a project for site set up then larger spends on MEP etc, then slows again
32
Why are S curves used?
To compare actual progress against predictions
33
What is an Escrow account
Separate account owned by third party on behalf of two other parties, with contract conditions for release of funds
34
How do you analyse a company’s accounts
Detail reviewed by accountants but I can calculate ratios. Any ratios in company accounts might be manipulated.
35
How do you carry out a credit check
D&B which my company utilises and review key ratios
36
How would you protect from a low credit rating
Performance bond, and review front loading risk
37
What would a falling working capital ratio show
Liquidity ratio below 0.75, low credit rating, falling cash-flow
38
What are signs of insolvency
Liquidity ratio below 0.75, low credit rating, falling cashflow
39
What would you do in the event of contractor insolvency?
Inform all parties and secure site, Inform bondsman, Stop pending payments/seek legal advice Take ownership of vested materials Schedule all materials on site Value works to date Terminate the contract
40
What is liquidation?
Closure of a limited company - assets are sold (liquidated) for the benefit of outstanding creditors
41
What is the difference between administration and liquidation?
Administration - someone is appointed to manage the company affairs on behalf of the creditors. Liquidation - shutting company and selling assets to pay creditors
42
What is bankruptcy?
Individuals, not limited companies, share assets amongst creditors to make a fresh start from debt.
43
What’s does a Dunn & Bradstreet report cover?
Revenue, equity (assets less liabilities), profitability metrics, balance sheet info, cash flow + credit risk rating
44
What scores/ratios are in a D&B report?
- paydex score (how timely it pays its bills) - current ratio (assets over liabilities)/liquidity ratio - acid test ratio (incl inventory) - etc

RICS EPA Revision (18 decks)

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