Accounting Principles Lvl 1 Flashcards
(33 cards)
What are the key financial statements
- Profit and loss accounts
- Balance sheet
- Cash flow statement
What is the difference between management and financial accounts
- Management are for internal use by the mgmt team
- Financial accounts are the company accounts required by Companies Act 2014
What is the difference between a P&L and balance sheet
- P&L shows income and expenditures of a company and resulting profit or loss
- Balance sheet shows what the company owns and what it owes.
What is a cashflow statement
- Summary of actual and anticipated ingoing and outgoings of cash in a firm over the accounting period
- Measures short term ability of firm to pay bills
Explain your understanding of Capital allowances, sinking fund, insolvency
Capital allowances - Tax relief for certain purchases by businesses
Sinking fund - Funds set aside for future expenses
Insolvency - Liabilities exceed assets
What are liquidity ratios
- Measures companies ability to pay of liabilities by converting assets into cash
- Current assets / Current liabilities
- Ratio around 1.5
- Liquidity ratio of less than .75 can be early indications of insolvency
What is profitability ratio
- Measures performance of company in generating profits
- Net Profit / Total Revenue of Company
- Margins are industry dependent
What are financial gearing ratios
- Financial ratio that compares some form of capital or owner equity to funds borrowed by the company
- Helps measure solvency
- Highly geared rely on debt
- Interest reduces profit
Why do chartered surveyors need to understand and interpret accounts
- Aid in preparing own business accounts
- Assessing financial strength of contractors and tenants
- Assessing competition
What is the purpose of a P&L
- Monitor and measure profit (Loss)
- Benchmark
- Valuation purposes and competitor analysis
- Forecasting
- Calculate tax
What’s the difference between debt and creditors
Cred - Owed money (extended credit)
Debtors - Owes money
What is a financial statement
Financial statements are written records that convey the business activities and the financial performance of a company
What is a profit and loss account
Demonstrates companies sales, running costs and profit and loss
- Used to show sales v. expenses
- Also identify non- profitable work
What is a balance sheet
- Shows value of everything the company owns made up of assets and liabilities
What is a cash flow forecast
- Details out the cash entering and leaving the business in a financial year
What is an S-Curve
- S-Curve means ‘standard’ and refers to the shape of the expenditure profile when shown on a graph.
- Start of project rate of exp is lower
- As scheme progresses, the rate of expenditure will typically increase as more expensive components are installed M&E etc..
- Towards the end the rate of expenditure will slow
What are Escrow accounts
- Separate account owned by a 3rd party, held on behalf of two parties
- Defined contractual conditions for the release of funds
When have you used company accounts in your work
- Assess both contractors for works and tenants for letting and assignment
How do you analyse a companies accounts
- Clients accountant should do but I have carried out some simple ratios and overall commentary
How do you carry out a credit check
I personally use search4less to get an understanding of the companies financials and there board makeup
What are the signs of an insolvent company
- Low credit
- Liquidty ratio below .75
- Falling working capital ratio = company may be taking on too many projects
- Low return on equity
- Highly geared
- falling cashflow
Why would you not recommend the appointment of a contractor with low crediting rating
- Increased risk of poor performance
- Increased risk of under resourced project
- Poor materials used
- Contractor insolvency
What measures could you take if your client wants to go with a low credit rated contractor
- Request a performance bond
- Review tender submission to ensure it’s not excessively front loaded
- Project bank account
What is GAAP/IFRS
GAAP and IFRS are two important sets of accounting standards that companies use to prepare their financial statements. Here’s a breakdown of each:
GAAP (Generally Accepted Accounting Principles): This is the common standard for financial reporting in the United States. It’s a rule-based system, meaning companies must follow specific guidelines for accounting practices. The Financial Accounting Standards Board (FASB) sets these standards.
IFRS (International Financial Reporting Standards): This is a set of international accounting standards used by many countries outside the US. It’s a principles-based system, which means it provides more general guidelines rather than strict rules. The International Accounting Standards Board (IASB) develops these standards.
