Budgeting and Accounting Concepts Flashcards
Which of the following financial transactions are categorized as part of the expenditure cycle for a commercial office building?
Staff receives invoices for window washing, the elevator technician receives a check for last weeks service, and the property manager signs for janitorial services.
The fundamental accounting equation states that assets = liabilities + owner’s equity.
True
When receiving a rent check from a tenant, reflect the increase in the rent income account by recording a ________ for the amount paid.
Debit
For the balance sheet to show a balance between accounts, liabilities must be equal to assets plus owners equity.
False
Because the property manager uses ______ basis accounting, the books will reflect expense incurred for vendor services even if the payments have not yet been made.
Accrual
Shows revenues earned and expenses incurred in earning those revenues, resulting in net income or net loss for the period.
Income statement
Reflects the balances of each asset, liability, and owners equity account at a particular point in time.
Balance sheet
Describes the changes in cash from one period to the next.
Cash flow statement
“Your main function for the next few months will be to record and classify transactions. You will be performing the process of _______.”
Bookkeeping
“To the degree you are able to assume the role of accountant, you’ll engage in many more functions. You will not be responsible for ______ financial data.”
Memorizing
If you perform an accounting functions, you will ______ financial data.
Interpret
When we create our budget, we make a plan for financing expenditures in the _______.
Next year
Your job functions will include acquiring property, paying for it, and reporting on what is acquired and what is paid for. You’ll be involved in ___________.
The expenditure cycle of accounting
When you balance the books, you will basically be dealing with:
Assets, liabilities, and owner’s equity.
“If the company takes out a loan to make capital purchases, how would you record this?” To be correct, you should record the money received as a ________ in Assets and as a ________ in Liabilities.
Debit; Credit
Day after day, you record debits and credits for each entry to the balance sheet. This process is referred to as ________ accounting.
Double-Entry
The common set of accounting principles, standards, and procedures that Janet uses to record accounting data and compile the company’s financial statements is known as:
GAAP
“If we grow to the point where we become a large multinational company doing business in many countries, what set of accounting principles, standards, and procedures will we use?” You ask. “We’ll have to use the ________.”
IFRS
A ______ building-by-building comparison of actual operating income and expenses against the budget is used to determine the success of the property manager in meeting operating plans.
Monthly
If I want to know what monies have been earned, but not yet received, by the company, what standard financial statement would I consult?” “You would want to examine the ________ statement.
Accounts receivable
Prepare financial reports on a(n) ________ basis, as it is the most basic method.
Cash
You will soon be introduced to accounting, or internal, controls that maximize cash income and minimize cash outflows. In particular, you will have to learn how to help the company avoid the most common error in properly administering tenant leases, which is:
Overlooking charges that are properly billable to the tenant.
The owners of the building you manage are committed to ensuring that company funds spent on building supplies and services are highly regulated. They require that ______ orders are submitted for approval before any actual major purchases are made.
Purchase
If you want to show the owner of the building the details regarding tenants who are late on their rent payments, you will reference ______.
The delinquency report
The information on the rent roll stays the same from year to year.
False
You need to tell the leasing team how many suites are vacant in the building. You will reference the _______.
Vacancy report.
If you use the BOMA Chart of Accounts, she should understand that the level that reflects the functional categories of building operations is the ________ level.
First
The controls that you implement for the administration of accounts payable and receivable are both necessary and proper. You know that the individuals who authorize payments ________ be the same people who issue the checks.
Should not
The report that contains the listing of all current tenants in the building along with both financial and physical information. This type of report is the:
Rent roll
________ is what creates the foundation for sound decision making based on information, proper year-end reconciliations, and for compliance with tax and legal requirements.
Accurate record keeping
Given the past disarray of your properties records, you are are doing your best to prepare for an audit. The audit trail that you are attempting to construct leaves a record that ________ can verify.
Auditors
The advantages of using purchase orders include clearly outlining the goods being provided, outlining the general terms and conditions of the purchase, and:
consolidating orders and discounts.
A tickler system helps ensure that record-keeping responsibilities are met. This system typically monitors the due dates for all of the following
Lighting bills,
Killian Consultants just signed a ________ lease at Marvel Tower, an office building downtown. This lease should result in fewer questions when it comes time to pay rent, as the base rent covers all charges owed and there are no additional payments required from the tenant.
Gross
Peak Properties is aiming to obtain new retail tenants in a strip mall. They will sign a ______ lease, in which the tenant is responsible for paying base rent, but is also charged separately for property operating expenses, property taxes, insurance, repairs, site maintenance, building upgrades, and routine maintenance.
Triple-Net
The tenant named in a lease is always the individual or entity that pays the rent.
False
Specifies fees charges to tenant in the tenant stays in the leased space after the lease has expired but does not renew the lease.
Holdover
Common in retail leases; it specifies the hours in which the tenant is expected to operate a business.
Continuous operation
Indicates what will happen if through the fault of the landlord the tenant is delayed in moving into the leased space.
Delay of possession
These items are likely to be listed as billable items in a customary and additional service lease clause.
Overtime HVAC, electrical outlet repairs, WiFi
Which report should you use if you want a visual interpretation of the size and position of each leasable space in a building, to include both those spaces that are vacant and those occupied by tenants?
Stacking plan.
Regardless of the amount of experience Miguel might have, the law assumes that as a property manager, he is a ________ and is therefore held to a ________ standard than the building’s tenants.
knowledgeable party; higher
A prospective tenant for the vacant third floor office space in Miguel’s building is a branch location of a national chain of insurance agencies. Since Miguel is unclear if the corporate office for the chain will pay rent or the branch leadership, it will be necessary to ________ the name of the lessee if the prospective tenant elects to rent in the building.
document
Miguel wants to know how space is allocated among tenants in each floor of his multistory, multi-tenant building. Also, he wants a visual representation of which suites are vacant and the expiration dates of the tenant leases. He should request the:
stacking plan.
As he has worked with tenants (both current and prospective) over the years, Miguel continually reminds them of the main function of a lease. The lease’s main function is to protect the interests of the:
landlord and the tenant.
Miguel is changing the way the lease abstracts will be written so that they follow proper and common practice. In its simplest form, a lease abstract is an overview of the most frequently ________ items in a lease
referenced
Miguel has a tenant who paid rent three days after the due date. To determine whether or not additional charges should be assessed against this tenant because of his tardiness, which of the following common significant lease clauses should Miguel consult?
late charges
Miguel reviews the proposed lease of another prospective tenant who will pay base rent to the landlord, as well as property operating expenses incurred by the landlord. However, the tenant will pay separately for property taxes. This best describes a(n) ________ lease.
single-net
One prospective tenant is starting a new business and does not anticipate much cash flow in the first few years. As a result, the tenant requests the type of lease that ensures the landlord pays for all expenses of property operations. This tenant wants a ________ lease.
gross
A new tenant to the building Miguel manages decided to install new carpeting in the suite it will soon occupy. The tenant is responsible for overseeing and financing the carpet installation, which has fallen behind schedule and delayed the date when the tenant planned to move into the suite. Which lease clause should Miguel consult to confirm whether or not he should hold off on assessing rent charges for the tenant until the carpet installation is complete?
delay of possession
As a property manager, you communicate a scheduled increase in monthly rent to one of the tenants. This increase raises the tenants base rent.
True
These expenses are examples of charges that can be categorized to CAM.
Lighting, signage, landscaping, utilities.
What is the portion of rent charges that is charged in addition to base rent that is determined through the use of a percentage or calculation called?
Pro rata share
_____ basis accounting requires that income and expenses are reported related to the period for which they are applicable, whether or not cash has been transferred.
Accrual
The landlord spends a portion of the budget each year on advertising. The costs are recovered by charging _____ to the tenants.
Percentage rent
Examples of non recoverable costs:
Owner travel expenses, utilities for vacant suites, tax return prep fees, cap ex projects.
In order to calculate each tenant’s share of the property cost increases, Natalie would ________ by the tenant’s pro rata share.
multiply the net cost increase
Natalie insists on adherence to best practice in communicating changes in monthly estimates for the expense portions of leases. The best practice is to calculate and communicate such changes to tenants by ________ to become effective with the monthly rent for January.
early December
The first thing Natalie does is to examine the two main categories of rent for Carmichael’s properties. The two categories are base rent and ________ rent.
additional rent
Although it has not proven to be a problem, Natalie reminds her colleagues that, from a legal perspective, ________ income received by the owner of a property is considered to be rent.
all
Among the ________ expenses that Natalie can look to for recapturing purposes are real property and operating expenses, common area maintenance charges, and electricity.
common billable
Instead of using the operating costs from a base year of operation to assess modified gross lease rent increases, Carmichael Properties uses the expense stop method. This is a somewhat confusing method, and Carmichael and its tenants experience this confusion. However, in spite of what people may believe, the rule is that when the expense stop is reached, the owner ________ paying and the tenant ________ paying.
stops; begins
Natalie is dissatisfied with the kind of lease Carmichael Properties employs with the tenants of the retail mall it owns. Since Carmichael incurs the costs of advertising and special promotions to make the mall attractive to consumers, Natalie wants Carmichael to take advantage of ________ clauses, which will allow Carmichael to recover these expenses and risks by participating in the success of the retail tenants.
percentage rent
Natalie is concerned by how the various expenses have been categorized in Carmichael’s books. Those expenses that are unrelated to the management, maintenance, and repair of the building should be classified as ________ expenses.
nonrecoverable
Natalie is also concerned that the members of her department do not seem to understand that cash basis income statements do not conform to GAAP requirements. However, even if the department opts to use cash basis—as opposed to accrual basis—for its income statements, the key is to review the expense accounts to ensure that each category contains a full ________ of activity.
12 months
To ensure that Carmichael Properties receives the value of a dollar of rent adjusted for inflation, base rent is increased annually based on increases in the CPI. Increases are determined by comparing the ________ CPI to the base CPI.
anniversary
The tenant takes occupancy of the space on March 21, the tenant will only be charged for 10 days of rent in the Month of March.
Prorated
One method to attract new tenants is to offer ______ rent, which allows tenants to pay a lower rent at the beginning of their tenancy with the understanding that it will increase with time.
Stepped
What’s a possible explanation for why a tenant will need to pay rent during an abatement period?
“While your lease guarentees free base rent for three months, you still owe additional rent for direct charges, such as after-hours hvac service.
Which tenant will likely need to apply the holdover rent clause in their lease?
A business in the slow process of finding an alternative place of operation.
What is helpful when dealing with delinquent tenants?
Aged accounts receivable reports, knowledge of tenant payment history and habits.
What is the order to classify income?
Cash received or amounts charged are recorded as income, income is classified into accounts, amounts and codes are transferred to general ledger, monthly financial statement is created
The landlords at Ideal Towers sometimes have to charge holdover rent. For such a tenant, whose base rent is $25,000 per month, the landlords apply a holdover rate of 1.25. This means that the holdover tenant should pay ________ per month.
$31,250
The finance office personnel were confused about the nature and obligations of lease reminder notices. Elvin informs them that a lease ________ a legally binding contract that ________ obligate the landlord to provide the tenant such notice.
is; does not
Ideal Towers has had its share of delinquent tenants. Elvin takes steps to ensure that his office will follow generally accepted practice regarding tenant receivables. This means that monthly reminders will be delivered to tenants on or before the ________ of the month preceding the due date.
25th
Unfortunately, the owners of Ideal Towers have not been charging all the rent that they are entitled to charge. For example, they could pass on the costs associated with operating expenses, real estate taxes, and common area maintenance. These charges would be considered ________ rent.
Additional
Elvin explains to his colleagues that with rent abatements, the rent periods are often ________ the terms of the lease. Also, the rents may apply to ________ only.
added to; base rent
While recurring monthly charges are copied from the tenant database to the cash receipts journal, _______________ are entered directly into the cash receipts journal in the month they occur.
one-time tenant charges
In discussions with his office’s personnel, Elvin discovers that they have never used ________ rent to their advantage. This type of rent typically offers rents that are below-market, but rise over the life of the lease.
stepped.
Since tenants move into their spaces at different times during a particular month, the first month’s rent is often prorated. Unfortunately, Elvin learns, the leases signed by both tenants and the landlord do not contain a(n) _______ letter, which specifies the exact date of the lease commencement and expiration.
commencement
Elvin discovers that the finance department does not pay heed to the three functions of the revenue cycle. For instance, no one in the department understands that the final step in the revenue cycle is:
reporting of billings and collections.
Elvin ensures that the collections and charges they receive are properly classified. This means that he, as property manager, and the accounting staff should assign a ________ to each category of income they collect or charge.
chart of account codes
What is it called when you assigned individuals to work on different sections of the budget.
Responsibility budgeting
Which documents should be considered when updating the rent roll?
Commencement letter, new leases not yet abstracted
List two reasons why base rent could change from year to year
tenants might be scheduled for rent increases, some leases may expire
_____ occurs when there is a difference between recoverable operating expenses and the actual operating expenses.
Slippage
The common practice for variance reporting is when the percentage is greater than ______
5 percent
What is the stages of budgeting base rent?
Schedule base rent monthly for each existing tenant, increase base rents for future stepped rent increases, identify a success ratio in obtaining renewals for leases expiring during the year, quantify leasing efforts need to market vacant space
In budgeting base rent, Sheila would like to use the most reliable information. Of the four stages in budgeting base rent, the stage involving the most reliable information would be:
scheduling base rent monthly for each existing tenant.
In scheduling tenant base rent, Sheila is best advised to use a base rent worksheet with a complete listing of the tenants and:
the suite numbers and square footage.
Sheila has the leasing team develop the leasing budget for the downtown office property. Likewise, she has the operations manager develop the building operating budget for the same property. This practice represents ________ budgeting.
responsibility
According to generally accepted procedure, Sheila should communicate budget variances on a(n) ________ basis in the variance analysis.
Monthly
Sheila works hard to ensure that spaces are vacant for as little time as possible. She also makes sure that the expense caps written into the leases are generally higher than what the tenants may prefer. Both of these efforts help to lessen the difference between recoverable operating expenses and actual operating expenses. This difference is known as:
Slippage
In her budget projections, Sheila typically enjoys high success ratio in the range of 90 to 95 percent. This is because she combines market conditions with:
owner objectives and an assessment of past performance.
Before Sheila begins budgeting income, she first must update the rent roll. A variety of influences affect the status of the rent roll. However, in terms of updating the rent roll, she need not concern herself with:
results of tenant satisfaction surveys.
Other sources of income do not escape Sheila’s notice. These other sources, such as parking, storage, and rooftop solar panels, require a(n) ________ schedule to show additional rent charges.
monthly tenant-by-tenant
The RFP should do all of the following: outline requirements of the contract, establish a base line to enable objective vendor proposal comparisons, include an appropriate deadline, but is should not include:
the payment the vendors will receive.
These items are most important to consider when comparing vendors:
Reasonability and achievability of each vendors bid, each vendors experience and reputation, each vendors hourly or productivity rates.
Should minority status be included in the vendor database?
Yes
What is the correct order of events in order to pay an invoice:
receive invoice, date stamp and match invoice with appropriate purchase order, contact vendor if there is a discrepancy, make payment to the vendor
What to do if an invoice is received that was not budgeted?
Code the expense to the general account.
What should be included on the payroll register?
Hours worked, workers compensation and health insurance, gross wages, federal and state withholdings.
While Kevin is satisfied with the quality of the service provided by the cleaning vendors, he is concerned about the cost. He therefore is going to submit RFPs to various cleaning vendors. It is generally recommended that RFPs be delivered to no more than ________ vendors to ensure proper consideration.
3 to 5
There are a variety of criteria Kevin should use when evaluating and comparing vendor RFPs. However, he need not concern himself with the vendor’s:
corporate headquarters.
Having decided on Heavenly Cleaners, Kevin has one of his office staff enter the vendor’s information into the vendor database. Which of the following is an example of the kind of information that should be entered into the database?
federal tax I.D. number
Kevin and a representative from Heavenly Cleaners agree on a price for the services to be provided. Thereafter, a purchase order is drawn up. A purchase order:
is forwarded to the vendor from the purchaser.
