Accounting Principles and Procedures Flashcards
(16 cards)
Why do McBains need to keep a record of their financial standing?
Compliance - legal requirement to maintain accurate up-to-date financial records in line with Companies Act 2006.
Tax obligations - Accurate financial records are required to calculate and pay taxes.
Decision making - Detailed financial records aids strategy and planning.
What is a Balance Sheet?
A snapshot of a companies financial position at a given time. Shows what companies owe and own.
Reports on:
- Companies Assets (things company owns including money)
- Liabilities (things the company owes)
- Ownership Equity
Can identify trends and can be used to compare with previous balance sheets
What is a Profit & Loss Account?
Shows a companies revenue and expenses over a particular period
Monthly
Quarterly
or Yearly
These figures show whether a company has made a profit or loss over a period.
Could you tell me the differences between a profit and loss statement and the balance sheet?
A balance sheet shows what a company owes (liabilities) and what they own (assets). It is a snapshot in time. Good for comparison with a previous balance sheet.
Profit and loss statement is over a period of time, often a year, and shows the incoming and outgoing costs of the company, resulting in the total profit or loss made in the period.
What is a cashflow statement?
A financial document that provides an overview of the cash inflows and outflows from a company or individual during a specific period.
How are balance sheet and profit and loss statements used for managing company finances?
They provide a comprehensive understanding of the financial functionality and health of the business.
Allowing for better financial management and decision making.
What is the difference between management accounts and company accounts?
Management accounts - confidential for senior management within a company
Company accounts - Legal requirement to provide public information for outsiders
What are the pitfalls of using Dunn and Bradstreet reports?
Based on limited information from business itself or public records
Dependent on voluntary disclosures from companies
Not always up to date
Not a complete risk assessment tool
What information does a Dunn and Bradstreet report provide?
Overall business risk
Maximum credit recommendation
Risk of Bad Debt write off
Cash Flow Risk
Age of Business
Number of Employees
Profit and Loss Statement
Balance Sheet
What other financial checks are there other than Dunn and Bradstreet reports?
Credit Checks
Company House Checks
Dun & Bradstreet Report:
D&B report creates a business credit report that could be viewed like a personal credit report of a business.
What are signs of contractor insolvency on a project?
- Slowing down of works
- Supply of materials drying up
- Increase in defective work
- Changes in management
- Additional or inflated payment requests
- Complaints from subcontractors
What would you do in the event of contractor insolvency?
- Inform all parties involved
- Secure the site
- Consider stopping pending payments
- Take ownership of materials offsite
- Schedule all materials
- Value completed works and value any defects
- Monitor loss & expense incurred by the employer
- Terminate the contract
- Start the process of appointing a new contractor.
When does a company become insolvent?
When it doesn’t have enough to pay what it owes.
What is Liquidation?
A legal process that usually commences after insolvency, where the assets of the insolvent company are sold off (liquidated) to pay off creditors.
Liquidation signifies the end of a company’s life, leading to its removal from the Companies Register.
What is Administration?
Administration is a process that is initiated to help a company that is in severe debt to continue operating.
The key target of administration is to allow the company to keep trading and attempt to pay off its debts, which can prevent it from going into liquidation.
Please give me an example of what gross and net profit means
Gross profit is the revenue remaining after deducting the direct costs of producing goods or providing a service.
Net profit, on the other hand, is the amount left after deducting all expenses.
