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ARE 5.0 - PCM Exam > AHPP Chapter 7 - Financial Management > Flashcards

AHPP Chapter 7 - Financial Management Flashcards

1
Q

What are the two primary financial reports for an architecture firm?

A
  • Profit-Loss Statement

- Balance Sheet

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2
Q

What are the two essential components of a firm’s financial management system?

A
  • Annual Budget

- Profit Plan

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3
Q

What is Accrual-basis accounting?

A

Counting revenue earned and billed, plus all other direct and indirect expenses incurred.

Used for profit-loss statement and balance sheet development.

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4
Q

What is cash-basis accounting?

A

Income received, and all salaries and expenses paid.

Most commonly used for filing and paying quarterly and year-end taxes.

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5
Q

What is Net Operating Revenue?

A

aka. Net Revenue

Fees Billed + Reimbursables - Consultants - Project Expenses

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6
Q

What is Direct Labor?

A

Same as direct salary. Time charged to projects, invoiced or not.

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7
Q

What is Indirect Labor?

A

Same as indirect salary. Time charged to non-project-related activities.

Included in the calculation of total indirect expenses.

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8
Q

What are Reimbursable Expenses?

A

Expenses invoiced to the client in addition to fees.

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9
Q

What are Direct Expenses?

A

Non-reimbursable project-related expenses.

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10
Q

What are Indirect expenses?

A

Non-project related operating expenses.

Ex. Administrative labor, PTO, Office lease, marketing

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11
Q

What is an Overhead rate?

A

The ratio of total indirect expenses to total direct labor.

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12
Q

What is a Break-even rate?

A

The overhead rate plus the unit cost of 1.00 for an hour of salary.

Ex. Overhead rate of 1.30 + 1.00 = break-even rate of 2.30

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13
Q

What is a Utilization rate?

A

Direct labor expressed as a percentage of total labor.

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14
Q

What is Hourly Billing Rate?

A

The dollar amount charged to a client relative to one hour of direct labor.

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15
Q

What is a Net Multiplier?

A

The ratio of Net Operating Revenue to Total Direct Labor. (The measure of return on every dollar of direct labor)

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16
Q

What is Net Profit?

A

The $$$ remaining after deducting all direct and indirect labor and indirect expenses, before and distributions are made or tax is paid.

17
Q

What are Current Earnings?

A

The net dollar amount after all distributions are made and all applicable taxes have been deducted?

18
Q

What is the difference between Cash-Basis accounting and Accrual-Basis accounting?

A

Cash-basis is counting actual income received and money spent that month, regardless of when it was earned… whereas accrual-basis projects how much revenue is earned from the work done that month and labor expenses even though the revenue won’t come in for some time.

19
Q

What are some financial performance goals?

A
  • Projected net billing and revenue
  • Project consultant fees
  • Project-related expenses
  • Staff size and salary expense
  • Overhead expense & Break-even rates
  • Net profit
20
Q

What is “backlog”?

A

The balance of fees from current projects that have carried over into the coming year.

21
Q

What is the formula to find an employee’s hourly billing rate?

A

[Salary x (overhead rate + 1)] / compliment of profit %

22
Q

What is the formula for Overhead Rate?

A

Total indirect expenses / Total Direct Labor

23
Q

What is the formula to find the Net Multiplier?

A

Net Operating Revenue (how much it costs to run the firm) / Total direct labor (Salary costs)

24
Q

What is the formula for the Profit-to-earnings ratio?

A

Net profit (before distributions & tax) / net operating revenue (how much it costs to run the firm)

25
Q

What is the formula to find the net revenue per employee?

A

Net operating revenue (annual) / total number of employees

26
Q

What is the formula to find current Aged Accounts Receivable?

A

Average annual accounts receivable / (Net operating revenue/ 365 days)

Target is 60-90 days

27
Q

What is Solvency?

A

The firm’s ability to pay current debt.

Total current assets / total current liabilities
ex. $521,667 / $218,658 = 2.39 solvency

28
Q

What are the four sections of a Mattox format Profit-Loss Statement?

A

Revenue
Direct Labor
Indirect Expenses
Misc. Revenue/Expenses

29
Q

What are the sections of an Annual Budget?

A

1) Revenue
2) Fixed Expenses
3) Variable Expenses
4) Misc Revenue/Expenses

30
Q

What are some examples of Fixed Expenses?

A 
Direct labor
Indirect Labor
Benefits
Office Lease
Insurance
Auto Expense
31
Q

What are some examples of Variable Expenses?

A 
Office supplies
Software
Interest
Marketing/PR
Shipping
Office events/meals
32
Q

What are the three components of a Profit Plan?

A

Top Section: Revenue Projection
Middle: Projected P/L Summary
Bottom: Profit Goal

ARE 5.0 - PCM Exam (14 decks)

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