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ARE_PracticeManagement > ARCHITECTURE ACCOUNTING > Flashcards

ARCHITECTURE ACCOUNTING Flashcards

1
Q

ACCRUAL-BASIS ACCOUNTING

A

Revenue earned and billed from fees and expenses, including outside project consultant fees and expenses, plus all other direct and indirect expenses incurred. Firm leader’s focus is here.

Revenue-based only on invoiced fee and expense amounts sent and/or received.

Most firms use this modified accrual-basis for their profit-loss statement and balance sheet development.

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2
Q

CASH-BASIS ACCOUNTING

A

Income received and all salaries and expenses paid (a checkbook approach). Focused on the firm’s quarterly and annual tax liability.

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

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3
Q

NET OPERATING REVENUE (NOR “NET REVENUE”)

A

KLI Accrual P-L statement

= gross revenue - project related expenses

net dollars remaining after deducting the invoiced consultant’s fees and expenses, and all reimbursable and non-reimbursable project-related expenses.

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4
Q

DIRECT LABOR

A

KLI Accrual P-L

Time charged to projects, whether invoiced or not (by everyone, including principals.)

Same as ‘Direct Salary’

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5
Q

INDIRECT LABOR

A

Time charged to non-project-related activities (by everyone, including principals).

Note indirect labor is included in the calculation of total indirect expenses.

Same as ‘indirect salary’

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6
Q

REIMBURSABLE EXPENSES

A

Project-related expenses that are invoiced to the client in addition to fees. These would also include a markup percentage of those expenses. The markup dollars are a form of revenue.

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7
Q

DIRECT EXPENSE

A

Project-related expenses for a firm and its outside consultants that are not reimbursable, plus project-related expenses included in all lump sum fee contracts.

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8
Q

INDRECT EXPENSE

A

General and admin non-project-related operating expenses.

Total indirect expenses includes indirect labor.

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9
Q

OVERHEAD RATE

A

= total indirect expenses / total direct labor dollars

measures the cost of operations not directly attributed to projects.

Targe: 1.3 to 1.5 of total direct labor

ex: $308,241 toal indirect expnse / $ 200,914 total direct labor $ = 1.53 (Hourly salary of $10/hr, the overhead cost would be 1.53X$10=$25.30)

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10
Q

BREAK-EVEN RATE

A

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

Target: 2.3 - 2.5 of total direct labor

This means for every $1.00 of salary the firm must recapture $2.30 just to break even.

ex: 1.53 overhead rate +1 = 2.53
(For an hourly salary of $10/hr. The break even cost would be 2.53 x $10 = $25.30

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11
Q

UTILIZATION RATE

A

= direct labor hours / total labor hours x 100 to get %

Measures overall efficiency % - effective labor, not productivity

Target: Firm: 60-65% - Pro-tech staff (incl. principals): 75-85%

ex: 32 hours direct / 40 hours total = 80%

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12
Q

HOURLY BILLING RATE

A

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

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13
Q

NET MULTIPLIER

A

The ratio of net operating revenue (NOR) to total direct labor.

The measure of return on every dollar of direct labor.

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14
Q

NET PROFIT

A

= gross revenue - (total labor + indirect expenses)

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

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15
Q

CURRENT EARNINGS

A

The net dollar amount after all ditributions are made and all applicable taxes have been deducted.

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16
Q

TOTAL LABOR

A

= direct labor + indirect labor
Total Time
(if in $ then refered to as ‘total salary’)

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17
Q

7 KEY PERFOMANCE INDICATORS (KPI)
FOR PROFIT-LOSS STATEMENT
ACCRUAL BASIS ACCOUNTING

A
  1. Utilization Rate
  2. Overhead Rate
  3. Break-even Rate
  4. Net Multiplier (Direct Labor Mult.)
  5. Profit-to-earnings ratio
  6. Net revenue per employee
  7. Aged accounts receivable
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18
Q

PROFIT TO EARNINGS RATIO

A

= net operating revenue / total direct labor $

Measures teh revenue generated for every dollar spent on direct labor. Must be greater than the break-even rate for profit to be realized.

Greater than break-even rate
(industry benchmark: 3.0+)

ex: $622,207 NOR / $200,914 total DL$ = 3.1

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19
Q

NET REVENUE PER EMPLOYEE

A

= annual net operating revenue / total number employees

Measures the revenue earnings for each employee. Contributes to establishing net operating revenue in the coming year’s budget.

Target: Greater than $100,000 per employee

ex: $622,207 net operating revenue / 6 employees = $103,701 per employee

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20
Q

AGED ACCOUNTS RECEIVABLE

A

= average annual accounts receivable / (net operating revenue / 365 days)

Measures average time interval in days between date of outstanding invoices & date payment is recieved

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21
Q

4 KEY LINE ITMES

ACCRUAL BASIS ACCOUNTING

A
  1. Net Operating Revenue (NOR) or “net revenue”
  2. Direct Labor (% of NOR)
  3. Total Expenses
  4. Net Profit
22
Q

4 KEY LINE ITEMS

CASH BASIS BALANCE SHEET

A
  1. Current Assets
  2. Current Liabilities
  3. Long-term Liabilities
  4. Equity
23
Q

4 KEY FINANCIAL PERFORMANCE INDICATORS (KPI)

MONTHLY FINANCIAL REPORT (CASH BASIS)

A
  1. Solvency (Current Ratio)
  2. Liquidity (Quick Ratio)
  3. Leverage (debt-to-equity)
  4. Return to Equity
24
Q

SOLVENCY

A

= total current assets / total current liabilities

Measures a firm’s ability to pay current debt. Also known as “current ratio”.

Target: 1.5 to 1.0

Ex: $521,667 total current assets / $218,658 total current liabilities - 2.37

25
Q

LIQUIDITY

A

= (cash + accounts receivable + WIP) / total current liabilities

Measures a firm’s ability to convert assets to cash.

Target: Min. 1.0 to 1.0

ex: ($518,194: cash + AR + WIP) / $218,658 total current liabilities = 2.37

26
Q

LEVERAGE

or debt-to-equity

A

= total liabilities / total equity x 100 ( as a %)

Measures a firm’s ability to manage debt effectively.

Target: Less than 35%

ex: $280,738 total liabilities / $949,451 total equity = 29.75%

27
Q

RETURN TO EQUITY

A

= (total net operating revenue - total expenses) / total equity * 100 (As a %)

Measures the accumulated amount of money returned on a stockholder’s investment for their risk and efforts.

Target: Equal to or greater than the anticipated net profit in the annual profit plan (20% or greater).

ex: $622,207 NOR - $509,156 total expenses) / $949,451 total equity *100 = 11.9%

28
Q

TOTAL DIRECT EXPENSES

A

= direct labor + direct expenses

29
Q

TOTAL INDRECT EXPENSES

A

= indirect labor + total indirect expenses

30
Q

6 BASIC FEE BASIS TYPES

A
  1. Stipulated lump sum
  2. Fixed fee + expenses (w/ or w/o cap limit on expense)
  3. Percentage of construction cost
  4. Hourly to a maximum + expenses
  5. Hourly-open-ended (no established maximum) + expenses
  6. Fee per unit/sf (mostly used on residential projects) + expenses
31
Q

CHART OF ACCOUNTS

A

represents sets of properly organized, multi-tiered, interrelated, numeric codes and/or account numbers. Each one serves as teh repository and record for every dollar received, paid, and billed by a firm as shown on a profit-loss statement and balance sheet.

32
Q

PROFIT PLAN

A

Develops a projection for each of the four primary components that affect profitability:

  1. revenue
  2. direct labor
  3. indirect labor
  4. indirect expenses
33
Q

EQUAL PAY ACT

A

Prohibits wage discrimination by requiring equal pay for equal work.

All employers comply

34
Q

OSHA

A

Requires emplyers to provide a workplace free of recognized hazards.

All employers comply

35
Q

FAIR LABOR STANDARDS ACT

FLSA

A 
Regulates:
Employee overtime status and overtime pay
Minimum Wage
Record Keeping
Child Labor

Compliance / All private sector employers with $500,000+ annual volume of sales and/or All federal, state, and local government personnel (except military)

36
Q

I-9 EMPLOYEE ELIGIBILITY VERIFICATION

A

Verifies: Identity and Right to work in the US

Compliance: All employers, must be completed within 3 days of hire, employer must retain I-9 for at least 3 yrs (and at least one yr after termination)

37
Q

PERSONNEL FILES

A

Employment records maintained for each employee of the company. May include application, resume, performance management documentation, agreements, and acknowledgment forms

Compliance: Any personnel or employment record must be preserved for 2 yrs. If the contractor has fewer than 150 employees or does not have a federal contract for at least $150k then the retention period is 1 yr.

38
Q

HEALTH INSURANCE PORTABILITY AND ACCOUNTABILITY ACT (HIPAA)

A

Privacy regulation governing individually identifiable health information.

Compliance: All health plans, health care providers, and health care clearinghouses.

39
Q

AMERICAN RECOVERY AND REINVESTMENT ACT (ARRA)

A

Provides: Tax cuts for families and businesses; Funding for entitlement programs, such as unemployment benefits; Funding for federal contracts, grants, and loans.

Compliance: Strict reporting on use of ARRA funds

40
Q

EMPLOYEE RETIREMENT INCOME SECURITY ACT (ERISA)

A

Sets minimum standards for pension plans to include participation, vesting, benefit accrual, and funding

Compliance: All pricate employers with a pension plan program

41
Q

CONSOLIDATED OMNIBUS BUDGET RECONCILIATION ACT OF 1986

COBRA

A

[15+ Employees]

Requires employers to continue group medical voverage if employment is terminated or hours are reduced.

Compliance: All private employers, state and local govt, and edu institutes w/ 15+ employees

42
Q

CIVIL RIGHTS ACT, TITLE VII

A

Prohibits discriminiation or segregation based on race, color, national origin, religion, and gender in all terms of employment

Compliance: All private employers, state, local, and federal local govt, and edu institutes w/ 15+ employees

43
Q

AMERICAN W/ DISABILITIES ACT (ADA)

A

Prohibits discrimination against a qualified individual w/ a disability

Compliance: All private employers, state, local, and federal govt, edu institutes w/ 15+ employees

44
Q

AGE DISCRIMINATION IN EMPLOYMENT ACT (ADEA)

A

Prohibits discrimination in employment for persons age 40 and over.

Compliance: All private employers w/ 20+ employees, unions with 25+ members, state, local and federal govt, employment agencies

45
Q

FAMILY MEDICAL LEAVE ACT (FMLA)

A

Allows employees to take up to 12 weeks of unpaid leave during any 12-month period to care for family members or because of a serious health condition of the employee.

Comliance: 50+ employees; Public agencies, inlcuding state, local, and federal employers, and local education agencies.
Private Sector employers who employ 50+ employees for at least 20 workweeks in the current or preceding calendar year.

46
Q

EEO REPORTING

A

The EEO-1 Report is a compliance survey mandated by federal statute and regulations. The survey requires company employment data to be categorized by race/ethnicity, gender and job category.

EQUAL EMPLOYMENT OPPORTUNITY
Requires employers to maintain EEO records

Compliance: 100+ employees and federal contractors with 50+ employees and federal contracts of $50k+

47
Q

ANNUAL REPORT (FORM 5500)

A

Annual report detailing financial records of benefit plans

Compliance: Pension, welfare, and fringe benefit plans with 100+ participants. Must be filed with IRS 7 mos. after end of plan year and retained for 6 yrs.

48
Q

PROFIT SHARING

A

a percentage of salary for employees based on the firm’s overall profitability, or the profitability of a particular division or office.

49
Q

FINANCIAL MNGMT

2 PRIMARY REPORTS

A
  1. Profit-Loss (P-L)

2. Balance Sheet

50
Q

2 ESSENTIAL COMPONENTS of

FINANCIAL MNGMT

A
  1. Annual Budget

2. Profit Plan

51
Q

PROFIT PLAN FORMAT

A

3 sections linked together in spreadsheet

TOP SECTION / Revenue Projection

MIDDLE SECTION / Projected P-L Summary

BOTTOM SECTION / Alt. Method to Check NOR and Profit Goal.

ARE_PracticeManagement (11 decks)

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