Accounting Principles and Procedures Flashcards
What is VAT?
Value Added Tax.
What is corporation tax?
Corporation tax is paid by UK limited companies and some other organisations. It is based on the annual profits that a company makes.
What is a financial audit?
An audit is an important term used in accounting that describes the examination and verification of a company’s financial records. It is to ensure that financial information is represented fairly and accurately.
What is turnover?
Income or revenue that company receives from normal business activities.
What are business overheads?
The indirect costs of operating a business. Rent/Leasing costs, utility bills, staff salaries, insurance.
Why does a business keep company accounts?
Tax purposes, demonstrates the company’s financial standing, to ensure cash flow and profitability in a company are correctly managed.
What are management accounts?
Financial reports produced for business owners and managers. They summarise business’ current financial health and are a valuable tool for making strategic decisions.
What is the difference between management and financial accounts?
Financial accounts describe the performance of a business and must be filed with Company’s House. Management accounts are used by business owners and management for day-to-day and strategic decision making. They aren’t required by law, and they don’t have to be filed with Companies House
What is an escrow account?
An escrow account is a type of legal holding bank account for monies, which can’t be released until predetermined conditions are satisfied
What is a Project Bank Account?
It is a bank account that allow payments to be made directly and simultaneously to the contractor and members of the supply chain. It is a cash-flow disbursement model designed to protect the project from the risk of supply chain insolvency and speed up payment times
Can you explain tax depreciation?
The depreciation expense claimed by a tax payer on a tax return to compensate for the loss in the value of tangible items. Examples include plant, property, and equipment.
Please name three types of accounting ratios?
Liquidity = Current Assets / Current Liabilities
Profitability = Gross Profit (Revenue – Cost of goods sold / Revenue)
Gearing = Long term liabilities / Capital Employed
What is financial leverage?
Financial leverage is the use of borrowed money to finance the purchase of assets with the expectation that income or capital gain from the new asset will exceed the cost of borrowing.
What are capital allowances?
The practice of allowing taxpayers to get tax relief on their tangible capital expenditure by allowing it to be deducted against their annual taxable income.
What are the core financial statements which companies might produce?
Profit and loss account, balance sheet, cash flow forecast.
Can you explain the difference between ‘gross’ and ‘net’ in accounting terms please?
Gross refers to the total amount of income before deductions, while net is the total after deductions.
Can you explain what shareholder equity is?
Equity represents the amount of money that would be returned to the company’s shareholders if all the assets were liquidated and all of the company’s debts were paid off in the case of liquidation. Effectively, the value that an owner has in the business.
What is UK GAAP?
Generally Accepted Accounting Practice, is the regulatory body that establishes how accounts and financial reports should be prepared in the UK.
Why is it beneficial for surveyors to understand company accounts?
For assessing the financial health of competing surveying practices, to assess the financial stability of tendering contractors and subconsultants, to aid in preparing company accounts within my own practice.
What is expenditure?
Payment to purchase goods or services.
What is capital expenditure?
CAPEX. Money spent to acquire or improve an asset, such as equipment or a building.
What is operating expenditure?
OPEX. Operating costs current in the day-to-day running of a business. For example, servicing a machine, buying spare parts.
Why are CAPEX and OPEX budgets split out in company accounts?
They have different tax obligations, for example CAPEX can benefit from capital allowances.
How would you administer Termination under an NEC4 ECC Contract if a Contractor had become insolvent?
Clause 90. Gives a list of Reasons for the Client to be able to terminate.
