Accounting Principles and Procedures Flashcards
What are generally accepted accounting principles?
A common set of accounting rules and standards that dictate how financial statements are prepared
What is a balance sheet?
A balance sheet is a statement taken at a point in time which evaluates the previous 12 months of the business. It shows the amount and types of assets and liabilities which a business has.
What are the commonly recognized assess and liabilities?
Fixed/Non-Current Asset
Current Asset
Fixed/Non-Current Liability
Currently Liability
Fixed/Non-Current Asset – Property or Possessions which are retained for the benefit of the business such as machinery or vehicles
Current Asset – Cash or any cash equivalents ie assets which can reasonably be expected to be sold (stock)
Fixed/Non-Current Liability – Debt or obligation of the company which is not due within 12 months (such as a mortgage)
Currently Liability – debts or liabilities which are owed within 12 months such as bank overdrafts
What is a profit and loss account?
Shows revenue and expensive incurred by a business over a period of time
Profit = turnover - operating expenses
What is a cashflow?
Shows the movement (increase of decrease) of money over a period of time
What is a gearing ratio?
Compares capital (equity) to debt
What is insolvency?
Insolvency is the inability of a debtor to pay its debts
What could happen if a business becomes insolvent?
Declared bankrupt
Go into liquidation
Go into administration
Whats the difference between liquidation and administration?
Liquidation brings about the end of a company by selling – or liquidating – its assets before dissolving it entirely.
Administration on the other hand, is typically utilised when there is a chance of saving a business which is currently experiencing high levels of financial or operational distress
What are the four procedures set out under the Insolvency Act 1986 governing the affairs of insolvent companies?
Company Voluntary Arrangements
Administration
Receivership
Winding up
What are CVAs?
A company voluntary arrangement (CVA)
Allows a company to settle debts by paying only a proportion of the amount that it owes to creditors.
To come to some other arrangement with its creditors over the payment of its debts.
What is Administration?
Court driving process aimed to rescue and restructure business
If company directors decide a business may be viable or may need to be sold but cant continue as it has too much debt
Administrator is appointed and takes over control of the business
What is winding up?
Closing a business as a result of insolvency
What is liquidation?
When a company goes into liquidation its assets are sold to repay creditors and the business closes down
What should you do if a company becomes insolvent?
Advise the client of contractor insolvency and actions to take
Go to site, secure materials and change the locks
Instruct the QS to prepare a detailed valuation of the completed works and inventory of materials
Terminate the contractors employment (written notice)
Withhold all payments to the contractor (issue payless notice is payment notice has already been issued)
Check if key subcontractors can continue works
Begin process of appointing new contractor to proceed with the works
Check bonds and PCGs
Discuss completion of works with administrator
