Accounting Principles Flashcards
(28 cards)
Q. Can you talk me through the Key Financial Documents that make up a Company’s Financial / Statutory Accounts?
Income statement (profit and loss) – shows financial performance
Balance Sheet – shows financial position of a company
Q. What does a Balance Sheet tell you about a Company’s Financial Standing?
Shows a company’s current assets and current liabilities at a moment in time
More importantly shows the financial position of a company, essentially how able there are to pay their debts
Good percentage would be 1.5%
Q. What does a Profit & Loss (Income) Statement tell you about a Company’s Financial Standing?
Shows the financial performance of a company over a period of time
Highlights whether a company is making a profit or a loss
Q. What does a Cashflow tell you about a Company’s Financial Standing?
Shows the inflows and outflow of cash of a company over a period
Q. Can you tell me the difference between Financial (Statutory) and Management Accounts?
Financial accounts are mandatory and must be submitted during a financial reporting year.
Management accounts are internal and are not mandatory.
Q. What is Profit & Loss?
Financial statement summarising revenues, costs, and expenses incurred during a specified period, usually a fiscal quarter or year. The P&L statement is synonymous with the income statement.
Q. What is a balance sheet?
The balance sheet shows what a company owns (assets) and owes (liabilities) at a specific moment in time
Q. What is income statement?
It is a statement showing total revenues and expenses for a period of time.
Q. What is a cashflow?
There are two main types of cash flow forecast:
1) The cash flow forecast of a company (i.e. a contractor or consultant) – otherwise known as organisational cash flow.
2) The cash flow forecast of a particular construction contract or project – otherwise known as project cash
Q. How do you prepare a cashflow?
For a project I would take the agreed programme of works and agreed pricing document or contract value and draw down the values against when they are expected to be completed.
Q. How do you check the financial credibility of a contractor? What does a credit score show?
Any claims that have been made against a company or contractor
Outstanding creditors
Performance of the contractor to make payments
Q. How might you calculate office overheads other than a %?
The Hudson and Emden formulas are methods used to calculate claims for overheads and profit in construction disputes, particularly when there are delays caused by the employer.
Hudson Formula
Delay Damages = (Head office overheads + profit %) / 100 * Contract sum / contract period * delay period
Q. What level of turnover might you expect from a contractor tendering for a project?
Level of turnover should be approx. 4x contract sum. 10% of turnover in that year = £100mil?
Q. Can you tell me what financial docs a business must submit annually?
Income statement (P&L)
Balance sheet
Q. Can you explain to me the difference between a balance sheet and profit/loss statement
A balance sheet shows a company’s financial position at a period
A profit and loss statement shows a company’s financial performance over a period of time
Q. Are you aware of any accounting ratios?
Gearing = (Total Debt / Total Equity) x 100 = Assesses how much of a company’s value is debt – 25% and lower is very good
Profitability = (Revenue – Costs – other deductions)/Revenue x 100 = Assess the profitability of a company
Liquidity = (Current Assets / Current Liabilities) x 100 = Assess a company’s ability to pay its debts. – 1.5% is good
Q. When is a company required to have its accounts audited?
For 2025 the thresholds are slightly lower than previous year
Annual turnover of £10.2m or more
Assets above £5.1m
Employees over 50
Companies exempt from audits if it does not meet two of the above
Q. What is asset and what is a liability?
Asset = something that a company owns (cash, stocks etc)
Liability = something that the companies owes (wages, loans, bills, etc)
Q. What are some signs of insolvency?
- Assets outweighing liabilities
- Cashflow showing a companies inability to pay its debts.
Q. What is the current interest rate?
4.25% as of Thursday
Q. What are the different types of insolvency?
Company Voluntary Agreements – (CVA’): An agreement made with creditors to pay debts off over time
Administration – A process where an insolvency practitioner takes control of the company to try and rescue it or achieve a better outcome for creditors than liquidation
Receivership: A receiver is appointed to recover money owed (Less common now following changes to insolvency law)
Liquidation: The company is closed, and its assets are sold to pay creditors
Creditors voluntary liquidation – initiated by Directors when the company is insolvent
Compulsory liquidation – initiated by creditors through a court order
Q. What are the different definitions of insolvency?
Insolvency has two main definitions; both are recognised under the insolvency act 1986
Cashflow insolvency – company cannot pay their debts as they fall due (actual)
Balance sheet insolvency – this happens when a person or companies liabilities exceed their assets. (technically)
