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Flashcards in Level 1 - Accounting Deck (50)
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31

N18. What is Revenue Expenditure?

The cost of maintaining an existing assets, the cost of which are placed wholly on the profit and loss account for that period

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N19. What is Capital Expenditure?

The cost of purchasing or upgrading an existing asset, the cost of which are spread over the useful life of the asset, and shown on the balance sheet.

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N20. What is Cash Flow?

The incomings and outgoings of cash within a business.

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N21. What procedures can you implement to improve Cash Flow?

- Negotiate shorter payment terms with clients.
- Negotiate longer payment terms with suppliers and sub-contractors.

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N22. Who requires auditing?

- Companies with a turnover of more than £6,500,000.00
- Public Companies.
- Companies providing a financial service, such as insurance brokers.

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N23. Where can you find information on a company’s financial status?

- Companies House for filed accounts.
- Top service for credit checks.

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N24. What are some types of financial ratio analysis?

- Current Ratio Analysis.
- Debt Ratio Analysis.

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N25. What is Current Ratio Analysis?

An examination of a companies liquidity, comparing company assets against company liabilities.

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N26. What is Debt Ratio Analysis?

An examination of a company’s debs, comparing company assets against company debts.

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N27. What is Insolvency?

Where a company is unable to pay its way.

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N28. What are the signs of insolvency?

- Overvaluing Interim Valuations.
- Front Loading.
- Dissatisfied workforce.
- Asking for upfront payment.
- Contractual Approach.

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N29. Who is employed when a company becomes insolvent?

- Administrator, who will try to keep the company going.
- Liquidator, who will wind up the company and sell the assets.

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N30. What options are available to a company that has gone insolvent?

- Administration.
- Company Voluntary Agreement.
- Compulsory Liquidations.

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N31. What is Administration?

A method of holding a business together, whilst plans are formed to either restructure the business of sell assets.

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N32. What should a PQS do if a Main Contractor goes insolvent?

1. Inform the Client.
2. Cancel any payments to the Insolvent party.
3. Secure the site.
4. Insure the site.
5. Call in the Bond.
6. Value the remaining works.
7. Go to second place tender.
8. Or take on the subbies direct.
9. Or re-tender the works.

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N33. What are the types of insolvency?

• Cash Flow Insolvency
• Balance Sheet Insolvency.

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N34. What is Cash Flow Insolvency?

• Where a company has enough assets to pay its debts, but not enough cash/equity.

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N35. What is Balance Sheet Insolvency?

• Where a company does not have enough assets to pay its debts.

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N36. What is the difference between management and financial accounts?

- Management accounts are internal.
- Financial accounts are required by law, and must follow a pre-determined format.

50

N37. What financial checks may you undertake on a company before entering into a contract with them?

- Check their published accounts on companies house.
- Check their credit ratings on a website such as Topservice.
- Ask for their order book.
- Check references from previous clients.