Accounting Principles & Procedures Flashcards
What is GAAP?
Generally accepted accounting principles are standard that encompass the details, complexities, and legalities of business and corporate accounting.
What requirements are set out in the Companies Act 2006?
You must keep accounting records that include:
- It is mandatory for businesses to prepare a balance sheet + a profit and a loss statement and to make these available to HMRC and Companies House.
What is a balance sheet?
A balance sheet reports a company’s assets, liabilities and shareholder equity at a specific point in time
What is a profit and loss statement?
Profit and loss statement is a financial statement that outlines a company’s revenue, costs, and expenses over a specific period of time.
What is the purpose of a cash flow statement?
A cash flow statement is a financial system that provides aggregate data regarding all cash inflows a company receives from its ongoing operations and external investment sources. It also includes all cash outflows they pay for business activities and investment during a given period.
- Investment (in and out)
-Revenue
What is a credit check?
Business to business process used by businesses to ascertain the financial security of a company by checking through their recent finance history, particularly their repayment record. They may be used by clients and consultants who want to ascertain whether the contractor has a good financial history.
What does a company’s credit score indicate?
The score ranges from 0 to 100, w 0 representing a high risk and 100 representative a low risk. It indicates the likelihood of a company failing to pay invoices or meet other financial obligations, this likelihood is expressed as a risk score. A credit rating agency I.e., Experian, provides this via a company credit check.
Why are they important?
Credit check will determine the likelihood of it becoming insolvent within the next 12 months. Failing to do a credit check may expose the client to a high risk of contractor insolvency during the works. Late payment of suppliers on the part of the Main Contractor may also lead to delays and a reduction in quality.
What is shown on a credit report??
1) Ownership info
2) Subsidiary companies
3) Finacial info
4) Risk scores
5) Any liabilities or bankruptcies
6) Court judgements affecting financial stability
What is meant by cash flow in business? Why is it important?
Cash flow refers to the net balance of cash moving into and out of a business at a specific point in time. It is important bc without it businesses cannot pay suppliers, buy raw materials, pay employees, make investments and pay dividends.
Give some examples of different ways fees may be structured.
A fee is a payment made to a professional person or to a professional or public body in exchange for advice or services. In ridge they are typically fixed, hourly or % based.
Why are timesheets important?
Tracking the time spent on tasks correctly facilitated accurate forecasts and invoicing and it also enables managers to identify common project delays and refine processes accordingly
What is a purchase order?
A PO is a document that shows a business’s intention to buy goods from a supplier. It becomes a legally binding document once it is accepted by bother parties. It is effectively a contract between the Buyer and Seller for goods/services for the prices and terms agreed w/in.
What is an invoice?
An invoice is a document given to the buyer by the seller to collect payment. It includes the names of the seller and client, description and price of services and terms of payment.
Why are payment terms important?
Payment terms are important bc knowing how much money is going to hit your account and when is essential to accurate cash flow forecasting
What is a project cash flow forecast?
The cash flow forecast of a construction contract or project deals specifically with the payments due under a particular construction contract between the employer and main contractor. The construction contract cash flow will often inform a company’s overall cash flow as they are intrinsically linked.
Cash flows on a construction project
See table 1 for potential directions of cash flow.
From - employer main contractors sub
To. - consultants suppliers specialists
- specialist constructors - HMRC
- HMRC - Designers
- Direct appointments
Explain the difference between cost and price
Cost is typically the expense incurred for making a product or device that is sold by a company. Price is the amount a costumer is willing to pay for a product or service.
What is VAT
Value added tax - is levied on the price of a product or service at each stage of production, distribution, or sale to the end consumer
How does VAT apply to a dilapidations claim?
HMRC’s position on VAT in dilaps claims is that it is a payment in settlement of damages. It is not ‘consideration’ in return for a ‘supply’ and is therefore outside the scope of VAT.
The LL is, however, genuinely at risk of suffer an otherwise irrecoverable loss of the value of VAT on any work he undertakes through tenant’s default. This will, however, depend on the elected VAT status of the building. An allowance for VAT can be included in the settlement figure. This is known as ‘compensation in lieu of VAT’
