M - Accounting Principles and Procedures

Question 1

What does a balance sheet identify?

Answer 1

Snapshot of company’s financial position at a given time
Reports assets, liabilities and ownership

Question 2

Can you explain to me what items build up a profit and loss statement?

Answer 2

Shows revenues and expenses over a particular period

Question 3

What would you expect to see on a company cash flow statement?

Answer 3

Money coming into and going out of the business through their main activities, i.e.

Incoming - monies paid into accounts from main service

Outgoings - rent, utilities, finance costs, costs of main activities

Question 4

What is insolvency?

Answer 4

Insufficient assets to discharge their liabilities

Question 5

What are potential signs of contractor insolvency?

Answer 5

• Contractor demanding swift payment, early release of retention.
• Subcontractors contacting your client directly; seeking payment
• overzealous / spurious applications for payment
• Withdrawal of labour, changes to key site individuals.
• Less frequent deliveries / removal of materials from site
• Slowdown in progress of work - behind on programme
• Rumours in the market

Question 6

What is the difference between tangible and intangible assets?

Answer 6

• Tangible assets - Physical items owned e.g. land, buildings, FF&E
• Intangible assets - Dont physically exisit e.g. trademarks, patents, investments.

Question 7

What is the Liquidity Ratio?

Answer 7

• Ratio of current liquid assets compared to the company’s liabilities
• Demonstrates the company’s ability to pay its current debt obligations
• Shows margin of safety
• Ratio should be 2:1

Question 8

What financial report may you request to demonstrate company’s financial position?

Answer 8

Dun and Bradstreet Report - Market leader, comprehensive overview with experience and understood

Question 9

If a contractor issues a cashflow and it is wildly different to previous forecasts, what would you do?

Answer 9

Raise with client, speak to contractor

Question 10

Why is cashflow imporant

Answer 10

• Understand financial commitments
• Track if spend is on target
• Manage surplus cash or cash gaps

Question 11

What would you do in the event of contractor insolvency

Answer 11

• Inform all parties
• Secure site
• Inform insurance company
• Stop payments
• Take ownership of materials
• Value completed works
• Terminate contract

Question 12

What is Companies Act 2006

Answer 12

• Governs companies in the UK
• How company is run, managed and financed