Financial Reports Flashcards
1
Q
What is the purpose of a financial report?
A
To portray past events accurately in an accessible format that communicates information readily to persons inside and outside the organization.
2
Q
What information is captured in financial reports?
A
Information about income, expenditures, assets, and liabilities of a property.
3
Q
How are financial reports for internal purposes structured compared to those for external uses?
A
Financial reports for internal purposes are structured differently from those prepared for external uses.
4
Q
What does an income statement categorize?
A
Income and expenses.
5
Q
What additional information does an income statement include?
A
Information about loan payments, interest, and income taxes.
6
Q
What does a balance sheet categorize?
A
The economic activity of a property into assets and liabilities.
7
Q
What are working capital and balance-sheet ratios indicators of?
A
The general financial viability of property.
8
Q
List the main kinds of financial reports used in real estate.
A
- Income statement
- Balance sheet
- Cash flow statement
- Statement of changes in equity
9
Q
How often should financial reports be prepared?
A
Financial reports should be prepared regularly, depending on the type of report and the needs of the organization.
10
Q
What distinguishes financial reports for internal use from those for external use?
A
The information included and the format may vary based on the audience.
11
Q
Identify the information that appears on an income statement.
A
- Total revenue
- Total expenses
- Net income
- Loan payments
- Interest
- Income taxes
12
Q
Explain how to organize an income statement.
A
By categorizing revenue and expenses, typically starting with revenue followed by expenses and net income.
13
Q
List the information found on a balance sheet.
A
- Assets
- Liabilities
- Owner’s equity
14
Q
How is information derived from balance sheet ratios interpreted?
A
It indicates the financial health and liquidity of a property, aiding in decision-making.
15
Q
What information and documents are used in financial reports to the owner?
A
- Income statement
- Balance sheet
- Cash flow statement
- Financial ratios
16
Q
How should financial reports for owners be organized?
A
In a clear and logical format that highlights key financial metrics and trends.
17
Q
What is the primary purpose of a report?
A
A report is a recap of events.
18
Q
What are the key characteristics that reports should have?
A
Reports should be comprehensive, accessible, concise, useful, and informative.
19
Q
What is fatal to a report?
A
Inaccuracy is fatal to a report.
20
Q
What can make a report bulky and unreadable?
A
Poor judgment in selecting what to include can make a report bulky and unreadable.
21
Q
What role do budgets play in reporting?
A
Budgets show activity for the month or year and highlight trends at a property.
22
Q
What types of reports reflect continuing financial activity?
A
Rent rolls, delinquency reports, and vacancy reports reflect continuing financial activity.
23
Q
What is the distinction between internal and external reports?
A
Internal reports include more detail about specific transactions, while external reports focus on the overall financial picture.
24
Q
What is managerial accounting primarily focused on?
A
Managerial accounting focuses on the internal workings of financial information to managers.
25
True or False: Reports for external parties tend to include detailed assumptions made by managers.
False.
26
Fill in the blank: Reports prepared for internal use are part of _______.
Managerial accounting.
27
What is one of the foremost uses of managerial accounting?
Planning.
28
What should the information included in reports display?
Good judgment.
29
What does the accumulation of various reports contribute to?
A comprehensive picture of a property's financial health.
30
What is the primary purpose of a report?
A report is a recap of events.
31
What are the key characteristics that reports should have?
Reports should be comprehensive, accessible, concise, useful, and informative.
32
What is fatal to a report?
Inaccuracy is fatal to a report.
33
What can make a report bulky and unreadable?
Poor judgment in selecting what to include can make a report bulky and unreadable.
34
What role do budgets play in reporting?
Budgets show activity for the month or year and highlight trends at a property.
35
What types of reports reflect continuing financial activity?
Rent rolls, delinquency reports, and vacancy reports reflect continuing financial activity.
36
What is the distinction between internal and external reports?
Internal reports include more detail about specific transactions, while external reports focus on the overall financial picture.
37
What is managerial accounting primarily focused on?
Managerial accounting focuses on the internal workings of financial information to managers.
38
True or False: Reports for external parties tend to include detailed assumptions made by managers.
False.
39
Fill in the blank: Reports prepared for internal use are part of _______.
Managerial accounting.
40
What is one of the foremost uses of managerial accounting?
Planning.
41
What should the information included in reports display?
Good judgment.
42
What does the accumulation of various reports contribute to?
A comprehensive picture of a property's financial health.
43
What falls under financial accounting?
Preparing financial reports for external use
## Footnote
Financial accounting is what most of us encounter when we work with accountants.
44
What do accountants do with income and expense figures?
Categorize them properly, determine tax laws and codes, tally gains and losses, and present results
## Footnote
Accountants also provide notes to show a company's financial health.
45
Why are financial reports for external use typically conservative?
To protect all parties
## Footnote
Forecasts, especially of income, are kept to a reasonable, often minimal, figure.
46
Who is responsible for making major decisions about a property?
The owner
## Footnote
The owner also sets the property's financial goals.
47
Is there a single standard format for financial reports to owners?
No
## Footnote
There is no single standard format for financial reports to owners.
48
What should the first page of the report to the owner include?
A narrative portion with a summary and discussion of the owner's goals and objectives
## Footnote
Another option is to include the narrative in a cover letter.
49
What types of financial reports should support the narrative in the owner's report?
* Summary of cash receipts and disbursements
* Variance report
* Capital improvements recap
* Income statement
## Footnote
The capital improvements recap lists expenditures of capital and describes achievements.
50
What does the monthly cash-flow budget summarize?
Inflows and outlays of cash succinctly
## Footnote
The cash-flow budget should be included in the report to the owner.
51
What additional document is usually included with the report to the owner?
A rent roll
## Footnote
The rent roll provides detailed information about rental income and tenant status.
52
What is emphasized in the preparation of financial reports?
Periodic financial reports to clients or property owners
## Footnote
This is because the owner is ultimately responsible for the property.
53
Fill in the blank: Financial reports for external use fall under ______.
[financial accounting]
54
True or False: Financial reports to owners must follow a strict format.
False
## Footnote
There is no single standard format for these reports.
55
What is the frequency of the report to the owner?
Monthly
## Footnote
This report includes several attachments.
56
What document is updated monthly and included in the report to the owner that details rental income?
Rent roll
## Footnote
The rent roll for commercial properties is more complex than for residential properties.
57
What report is updated monthly to inform the owner about unoccupied units?
Vacancy report
## Footnote
This report is crucial for understanding property performance.
58
What document is updated monthly to track overdue rental payments?
Delinquency report
## Footnote
This report helps in assessing cash flow issues.
59
What type of budget is usually updated monthly and can be included in the report to the owner?
Cash-flow budget
## Footnote
This budget includes brief descriptions of variances.
60
What report describes assumptions, amounts, and plans for managing variances?
Variance report
## Footnote
It communicates management's awareness and actions regarding variances.
61
What document summarizes the sources of income and disbursements at year-end?
Cash-flow statement
## Footnote
It highlights taxes and provides pre-tax and after-tax cash-flow figures.
62
What type of statement encapsulates financial transactions for the fiscal period for external use?
Year-end income statement
## Footnote
It differs from internal income statements by subtracting depreciation and interest from revenues.
63
True or False: The cash-flow budget typically includes detailed descriptions of variances.
True
## Footnote
Variance descriptions provide insights into financial activity.
64
Fill in the blank: The _______ report is crucial for understanding the financial health of a property by tracking rental income.
Rent roll
## Footnote
This document is essential for property management.
65
What type of reports are prepared at the end of the fiscal year for external use?
Financial statements
## Footnote
Usually involve accountants and auditors in preparation and assessment.
66
What is the statement of cash flows?
A summary of cash receipts, disbursements, and net cash position for the budget period
## Footnote
It provides insights into the cash inflows and outflows of an organization.
67
What does variance analysis focus on?
Analyzing financial performance and its impact on decision making
## Footnote
It helps understand discrepancies between budgeted and actual figures.
68
What are the key questions asked in variance analysis?
* Is there a difference between the budget and actual figures?
* How significant is that difference (in dollars and percentages)?
* What is the reason for the variance?
* Were the forecasting techniques used accurate and reliable?
* Is action necessary to correct the situation?
* What actions can be taken?
## Footnote
These questions guide the evaluation of financial performance.
69
What does an income statement for internal use include?
Principal payments as expenses
## Footnote
This differs from external reporting formats.
70
How often can an income statement for internal use be generated?
As often as monthly
## Footnote
This allows for timely analysis of financial performance.
71
What is the primary purpose of an income statement?
To analyze income and expenses
## Footnote
It is a common and necessary report for financial evaluation.
72
True or False: Depreciation and interest are included in the calculation of net income for internal use.
False
## Footnote
They are subtracted from revenues for external reporting.
73
Fill in the blank: The statement of cash flows will show up in an ________ but not in an expense.
income statement
## Footnote
It reflects the cash flow activities of the organization.
74
What is the income tax rate for the proprietor of Bridgehampton Apartments?
28 percent
75
What is the total revenue for Bridgehampton Apartments?
$133,600
76
List the revenue categories for Bridgehampton Apartments.
* Rental
* Other (coin laundry)
77
What are the total expenses for Bridgehampton Apartments?
$90,900
78
List the types of expenses included in the income statement.
* Operating expenses
* Depreciation
* Interest
79
What does depreciation represent in financial reporting?
The cost of aging
80
What does the interest expense represent in the income statement?
The amount paid in interest on loans
81
What is the income before taxes for Bridgehampton Apartments?
$42,700
82
What is the net income for Bridgehampton Apartments?
$30,744
83
True or False: Net income is the same as net operating income.
False
84
Fill in the blank: Operating expenses consist of all expenses incurred in the normal course of doing business, such as salaries, repairs, and _______.
utilities
85
What is included with operating expenses in the income statement?
Property taxes
86
What is the significance of net income in this income statement?
It is an after-tax figure
87
What are the three new lines of financial information highlighted in the report?
* Depreciation
* Interest
* After-tax net income
88
What is depreciation?
The expense of using up an asset such as equipment or a building
## Footnote
Depreciation refers to the reduction in value of physical assets over time due to aging and use.
89
How does the tax code refer to depreciation?
Cost recovery
## Footnote
The tax code allows for a certain amount of an asset's declining value to be taken as a business expense each year.
90
What factors affect the amount that can be depreciated according to the tax code?
* Kind of asset
* Purchase date
* How the asset is used
## Footnote
The tax code has a complicated schedule for calculating depreciation based on these factors.
91
What is the main difference between internal and external income statements?
External statements include depreciation and interest, while internal statements do not
## Footnote
Internal measures like NOI do not factor in taxes, while external reports include tax information.
92
What impact do depreciation and interest have on financial reporting?
They significantly affect a property's taxes
## Footnote
This is important for external reporting where tax liability is a consideration.
93
What does a balance sheet present?
The assets and liabilities of a company
## Footnote
A balance sheet balances assets against liabilities to determine financial health.
94
What is the primary purpose of a balance sheet?
To provide a snapshot of financial viability
## Footnote
This contrasts with the income statement, which summarizes financial performance over a period.
95
What is the primary purpose of an income statement?
To summarize financial performance over a period
## Footnote
It includes revenues and expenses to show profit or loss.
96
Fill in the blank: Depreciation is commonly referred to as _______.
Cost recovery
97
True or False: A balance sheet and an income statement serve the same purpose.
False
## Footnote
They serve different purposes: one is a snapshot of financial health, and the other summarizes performance.
98
What does NOI stand for?
Net Operating Income
## Footnote
NOI is a financial metric used in real estate to measure profitability, excluding taxes.
99
What does the balance sheet focus on?
Assets and liabilities
## Footnote
The balance sheet is a key component of double-entry bookkeeping.
100
How is the same transaction classified in the balance sheet?
As an asset
## Footnote
This reflects the principle of double-entry bookkeeping.
101
What are the three main components listed in a balance sheet?
Assets, liabilities, and owner's equity
## Footnote
These components provide a snapshot of a company's financial position.
102
What are considered corporate assets?
Economic resources like apartment buildings, office buildings, and shopping centers
## Footnote
These assets can generate income through rentals or sales.
103
What do liabilities represent?
Creditors' claims on a corporation
## Footnote
Liabilities indicate what the company owes.
104
What is owner's equity?
The difference between the value of corporate assets and liabilities
## Footnote
It represents the owners' claim on the assets.
105
How are assets categorized in a balance sheet?
Current assets and long-term assets
## Footnote
Current assets are used within twelve months, while long-term assets are held for longer.
106
What defines current assets?
Resources to be used within the next twelve months
## Footnote
Examples include cash, accounts receivable, and tenant deposits.
107
What distinguishes long-term liabilities from current liabilities?
Long-term liabilities are paid off over an extended time span
## Footnote
Current liabilities are due within the coming year.
108
What is working capital?
The difference between total current assets and total current liabilities
## Footnote
It measures a company's short-term liquidity.
109
What types of reserves are included in current assets?
Tax escrow and capital reserves
## Footnote
These may not be considered income but can be classified as assets.
110
True or False: Current assets include income.
True
## Footnote
Current assets can include cash and accounts receivable.
111
Fill in the blank: Current liabilities fall due within the _______.
Coming year
## Footnote
This emphasizes the short-term nature of current liabilities.
112
What is the role of depreciation in the balance sheet?
Posted as an expense among the assets
## Footnote
Depreciation affects the value of long-term assets over time.
113
What are balance-sheet ratios used to measure?
Liquidity
## Footnote
Ratios like working capital and current ratio help assess financial health.
114
What is working capital?
The difference between total current assets and total current liabilities
## Footnote
Working capital is a measure of a company's short-term financial health and its efficiency in managing its assets and liabilities.
115
How is working capital calculated?
current assets - current liabilities
## Footnote
This calculation excludes long-term assets and liabilities.
116
What was the working capital for Silver Maple Apartments?
$66,969
## Footnote
Calculated as $301,069 in current assets minus $234,100 in current liabilities.
117
What factors can affect changes in working capital?
Sources of working capital minus uses of working capital
## Footnote
For instance, diverting cash flow into capital reserves can affect working capital.
118
Is a working capital of $66,969 always sufficient?
Depends on the owner's and manager's plans
## Footnote
Property management involves many short-term uses of funds such as repairs and supplies.
119
What does the current ratio indicate?
Whether sufficient working capital is available
## Footnote
It is a key measure for assessing a property's liquidity.
120
What is net worth?
The value of a company's assets minus its liabilities
## Footnote
It indicates the overall growth and financial health of the company.
121
How is net worth calculated?
assets - liabilities
## Footnote
For Silver Maple Apartments, this was $2,728,269 - $2,528,302 = $199,967.
122
What is the formula for calculating owner's equity?
assets - liabilities
## Footnote
Corporations may refer to this as stockholder's equity instead of owner's equity.
123
What is the formula for the current ratio?
current assets ÷ current liabilities
## Footnote
This ratio helps assess the liquidity of a property.
124
Fill in the blank: The current ratio is calculated as _______.
current assets ÷ current liabilities
125
What is the formula for calculating the current ratio?
current assets ÷ current liabilities
126
What is the current ratio for Silver Maple Apartments?
1.286
127
What does a current ratio below 1.0 indicate?
Liabilities are larger than assets
128
What is the formula for calculating current debt to equity?
current liabilities ÷ net worth
129
What is the current debt to equity ratio for Silver Maple Apartments?
1.17
130
What does the total-debt-to-equity ratio indicate?
The ability of an organization to pay long- and short-term obligations
131
What is the formula for calculating total debt to equity?
total liabilities ÷ net worth
132
What is the total debt to equity ratio for Silver Maple Apartments?
12.64
133
What does a total debt to equity ratio of 12.64 indicate?
Owner's equity is low compared to total debt
134
True or False: Debt has no advantages in achieving financial goals.
False
135
Fill in the blank: The current ratio is calculated as _______.
current assets ÷ current liabilities
136
Fill in the blank: A current debt to equity ratio of 1 indicates that _______.
liabilities equal equity
137
Fill in the blank: The total debt to equity ratio is calculated using _______.
total liabilities ÷ net worth
138
What is the foundation of decision making in reporting to the owner?
Accurate information
## Footnote
Accurate information ensures informed decisions are made regarding property management.
139
What should accompany the report to the owner and the income statement?
A number of reports and documents
## Footnote
These include various financial and operational reports prepared by the site manager.
140
What is the purpose of the narrative summary in the reporting package?
Highlights accomplishments, explains notable variances, and discusses other pertinent activity
## Footnote
It serves as a cover sheet to the other documents.
141
Name three reports that should be included in the reporting package.
* Rent roll
* Vacancy report
* Delinquency report
## Footnote
These reports share data and were covered in lesson 1.
142
What does the monthly financial accounting report itemize?
All income and expenses
## Footnote
This report is crucial for financial oversight and is generated by the accounting department.
143
What might some owners think of the itemized monthly report from accounting?
Overwhelming
## Footnote
Some owners may choose not to read these 'monthly printouts' due to their complexity.
144
What is a monthly cash-flow budget?
A report that notes income and expenses over the month
## Footnote
Cash-flow budgets were discussed in detail in lesson 4.
145
What does a monthly budget variance report examine?
* Actual receipts and disbursements compared to budgeted amounts
* Dollar amount of each variance
* Percentage of each variance
* Indication of whether the variance is favorable or unfavorable
* Summary for each line item for the budget year to date
## Footnote
The variance report provides a detailed analysis of financial performance.
146
True or False: The site manager should ignore the itemized monthly report from accounting.
False
## Footnote
The itemized monthly report should be required reading for the site manager.
147
Fill in the blank: The report to the owner should be _______.
[comprehensive and accurate]
## Footnote
Comprehensive and accurate reports help in making informed decisions.
148
What documents should be attached to a report to the owner?
A number of documents that the site manager regularly prepares and maintains
149
What is the difference between an income sheet for internal purposes and one for external use?
The specifics of how income is presented and categorized may differ based on the intended audience
150
What is depreciation?
A method of allocating the cost of a tangible asset over its useful life
151
Why does depreciation receive special treatment?
It reflects the reduction in value of an asset over time
152
How is economic activity classified and presented on a balance sheet?
Through categories like assets, liabilities, and equity
153
What do working capital and the current ratio show about the general financial health of a property?
They indicate the property's ability to meet short-term obligations
154
Fill in the blank: The report to the owner should begin with a _______.
[narrative summary]
155
What are the key components of financial reports?
* Income statement
* Rent roll
* Vacancy report
* Delinquency report
* Itemized list of income and expenses
* Monthly cash-flow budget
* Monthly budget variance report
## Footnote
These components are essential for analyzing financial performance.
156
What does an income statement for external use include?
* Depreciation
* Interest expenses
## Footnote
The external income statement is typically prepared annually.
157
What does an income statement for internal use include?
* Principal payments as expenses
## Footnote
Internal income statements may be generated more frequently as needed.
158
What is depreciation in accounting?
A system for turning the aging of business assets into an expense that can be factored into financial statements.
## Footnote
It allows a certain amount of an asset's declining value to be taken as a business expense each year.
159
What does a balance sheet do?
Balances assets against liabilities to determine a company's worth at a certain time.
## Footnote
It provides a snapshot of financial viability.
160
How does an income statement differ from a balance sheet?
An income statement divides the world into income and expenses, while a balance sheet focuses on assets and liabilities.
## Footnote
The same transaction can appear as income on an income statement and as an asset on a balance sheet.
161
What are the two categories of assets in a balance sheet?
* Current assets
* Long-term assets
## Footnote
These categories help in understanding the liquidity and long-term financial health of a company.
162
True or False: The same transaction classified as income on an income statement is not recorded on a balance sheet.
False
## Footnote
The transaction is recorded as an asset on the balance sheet.
163
Fill in the blank: The income statement for external use is normally prepared _______.
[once a year]
164
Fill in the blank: Depreciation is the expense of _______ an asset such as equipment or a building.
[using up]
165
What does working capital involve?
A short-term turnover of money
166
How is working assets calculated?
By subtracting current liabilities from current assets
167
What does the current ratio highlight?
The relationship between current assets and current liabilities
168
How is the current ratio calculated?
By dividing current assets by current liabilities
169
What does a higher current ratio indicate?
A greater ability to pay debt and other obligations over the short term
170
What does the current ratio underscore?
Whether the amount of working capital at a property will be effective over the next year
171
What is the total income reported in the statement of Cash Flow?
$460,697.9
172
What are the components of income in the statement of Cash Flow?
* Rents: $387,234.93
* CAM income: $73,463.04
173
What is the amount listed for property taxes in the operating expenses?
$13,737.4
174
What is the total amount for operating expenses?
$102,493.83
175
What is the vet operating income calculated in the statement?
$358,173.76
176
What is the debt service amount listed?
$110,049.31
177
What is the final cash flow amount reported?
$248,124.45
178
Fill in the blank: The percentage income line in the statement of Cash Flow should report _______.
0.0
179
True or False: The budget includes salaried labor.
False
180
What types of contracts are mentioned for labor?
* Janitorial
* Landscaping
* Lighting maintenance
* Miscellaneous
* Steam cleaning
* Sweeping
181
According to the budget worksheets, what was the reason for no percentage income being received from renters?
No renter's income went high enough to invoke that clause of the lease
182
What should the contractors' pay be included under instead of salaries?
Maintenance and repairs
183
What are capital expenditures according to the budget?
0.0
184
What is the cash flow amount?
$248,124.45
185
Which four lines should have zeroes according to the budget?
* percentage income
* salaries
* advertising
* capital expenditures
186
What is indicated about renter's income?
No renter's income went high enough to invoke the clause of the lease.
187
How many contracts for labor are included in the budget?
Five contracts
188
List the types of contracts for labor included in the budget.
* janitorial
* landscaping
* lighting maintenance
* miscellaneous steam cleaning
* sweeping
189
What is the total revenue for Cornerstone Plaza?
$460,697.97
190
What are the components of total revenue?
* Rental: $387,234.93
* CAM (common area rent): $73,463.04
191
What are the total expenses for Cornerstone Plaza?
$288,259.77
192
What are the components of total expenses?
* Operating expenses: $102,524.21
* Depreciation expense: $94,000
* Interest expense: $91,735.56
193
What is the net income for Cornerstone Plaza?
$124,155.53
194
What can depreciation be described as?
The cost of the aging of a business asset.
195
What is the NOI for Cornerstone Plaza?
$358,173.76
196
How is the value calculated using NOI?
$358,173.76 ÷ 0.09 = $3,979,708.40
197
What is assumed about the age of the center?
The center is assumed to be only two years old.
198
What interest rate is assumed in the calculations?
9 percent
199
Fill in the blank: Depreciation is considered an _______.
expense
200
True or False: There was advertising in the last fiscal year.
False
201
What may utilities be broken down into?
Individual utilities
202
What does the income statement include that affects income figures?
Depreciation, interest expenses, and taxes
## Footnote
These components lead to a lower figure for income compared to cash flow.
203
What are the components to analyze when examining variances?
1. Budget 2. Actual 3. Variance 4. Dollar amount 5. Percent
## Footnote
These components help in identifying favorable or unfavorable variances.
204
What was the rental income budgeted amount?
$447,563
## Footnote
This figure is essential for calculating variances.
205
What was the actual rental income reported?
$387,235
## Footnote
This amount contributes to the calculation of the variance.
206
What is the variance amount for rental income?
$60,328
## Footnote
This is calculated as the difference between budgeted and actual rental income.
207
What percentage change does the rental income variance represent?
13.4%
## Footnote
This percentage indicates the unfavorable variance due to vacancies.
208
What was the actual amount for display case income?
$0
## Footnote
This resulted in an unfavorable variance since the budget expected income from display cases.
209
What should the site manager consider regarding display cases?
Contact stores that might utilize the display cases
## Footnote
This could help generate potential income.
210
What was the budgeted amount for advertising?
$0
## Footnote
This indicates a lack of planned expenditure for advertising.
211
What questions should be considered regarding advertising?
1. Should the center advertise for tenants? 2. Should the center place consumer advertisements? 3. What would be a reasonable budget for advertising?
## Footnote
These questions are crucial for developing an effective advertising strategy.
212
What was the budgeted amount for property taxes?
$38,500
## Footnote
This figure is part of the analysis for favorable or unfavorable variances.
213
What was the actual amount for property taxes?
$13,737
## Footnote
This results in a favorable variance but may indicate a budgeting error.
214
What should the site manager investigate regarding property taxes?
Whether a reassessment occurred that was not anticipated
## Footnote
This ensures future budgets are more accurate.
215
What should the site manager do to improve the budget's forecast accuracy?
Investigate further
## Footnote
This may include analyzing past financial data or adjusting assumptions.
216
What is the dollar figure mentioned for utilities that represents a large unfavorable variance?
$2,400
## Footnote
Unfavorable variances can significantly affect overall budget performance.
217
What actions may be taken in response to unfavorable variances in utility bills?
* Examining bills
* Checking meters
* Initiating conservation programs
* Searching for other suppliers
## Footnote
These actions aim to control costs and improve budget accuracy.
218
Why might the budget lack sufficient historical information?
Only the second year of operation
## Footnote
This can lead to inaccuracies in forecasting and budgeting.
219
What type of costs are often variable and may come in under budget if occupancy is not full?
Operating costs
## Footnote
Variable costs can include utilities and maintenance, contingent on occupancy levels.
220
What percentage represents the favorable variance that offsets unfavorable variance in rentals?
23 percent
## Footnote
This indicates effective cost management in relation to occupancy.
221
What is the total current assets amount for Cornerstone Plaza?
$126,211.55
## Footnote
This includes cash, accounts receivable, tenant deposits, tax escrow, and capital reserves.
222
List the components of the current assets for Cornerstone Plaza.
* Cash: $5,100
* Accounts Receivable: $24,000
* Tenant Deposits: $23,611.55
* Tax Escrow: $38,500
* Capital Reserves: $35,000
## Footnote
These components are critical for assessing liquidity.
223
What is the net value of buildings after depreciation for Cornerstone Plaza?
$3,089,766.80
## Footnote
This is calculated by subtracting depreciation from the total value of buildings.
224
Fill in the blank: The total amount of land for Cornerstone Plaza is _______.
$795,941.68
## Footnote
Land value is a key asset in real estate financial reporting.
225
What should the site manager do to improve the budget's forecast accuracy?
Investigate further
## Footnote
This may include analyzing past financial data or adjusting assumptions.
226
What is the dollar figure mentioned for utilities that represents a large unfavorable variance?
$2,400
## Footnote
Unfavorable variances can significantly affect overall budget performance.
227
What actions may be taken in response to unfavorable variances in utility bills?
* Examining bills
* Checking meters
* Initiating conservation programs
* Searching for other suppliers
## Footnote
These actions aim to control costs and improve budget accuracy.
228
Why might the budget lack sufficient historical information?
Only the second year of operation
## Footnote
This can lead to inaccuracies in forecasting and budgeting.
229
What type of costs are often variable and may come in under budget if occupancy is not full?
Operating costs
## Footnote
Variable costs can include utilities and maintenance, contingent on occupancy levels.
230
What percentage represents the favorable variance that offsets unfavorable variance in rentals?
23 percent
## Footnote
This indicates effective cost management in relation to occupancy.
231
What is the total current assets amount for Cornerstone Plaza?
$126,211.55
## Footnote
This includes cash, accounts receivable, tenant deposits, tax escrow, and capital reserves.
232
List the components of the current assets for Cornerstone Plaza.
* Cash: $5,100
* Accounts Receivable: $24,000
* Tenant Deposits: $23,611.55
* Tax Escrow: $38,500
* Capital Reserves: $35,000
## Footnote
These components are critical for assessing liquidity.
233
What is the net value of buildings after depreciation for Cornerstone Plaza?
$3,089,766.80
## Footnote
This is calculated by subtracting depreciation from the total value of buildings.
234
Fill in the blank: The total amount of land for Cornerstone Plaza is _______.
$795,941.68
## Footnote
Land value is a key asset in real estate financial reporting.
235
What is the total value of long-term assets?
$3,885,708.40
236
What is the total value of assets?
$4,011,919.95
237
What are the current liabilities?
$56,849.01
238
List the components of current liabilities.
* Tenant Deposits Payable: $23,611.55
* Accounts Payable: $18,400
* Tax Payable: $13,737.46
* Billed, unreceived: $1,100.00
239
What is the total value of long-term liabilities?
$1,100,000
240
What is the total value of liabilities?
$1,156,849.01
241
What is the owner's equity?
$2,855,070.94
242
What is the total of liabilities and equity?
$4,011,919.95
243
Fill in the blank: The equation for working capital is— current assets - current liabilities = _______.
working assets
244
What is the working capital calculated as?
$69,362.54
245
What is the equation for the current ratio?
current assets ÷ current liabilities = current ratio
246
What is the current ratio calculated as?
2.22
247
What does a high current ratio indicate?
The property is in a good position to pay its short-term obligations.
248
What is the equation for net worth?
assets - liabilities = net worth
249
What is the calculated net worth?
$2,855,070.94
250
Fill in the blank: Use one-fifth of the value that you found by capitalization _______ as the value of the land here.
$3,979,708.40
251
What is the calculation for net worth in the example?
$4,011,919.95 - $1,156,849.01 = $2,855,070.94
252
What does a net worth of $2,855,070.94 indicate?
It is quite high.
253
What is the nature of the assumptions discussed in relation to financial reports?
They deal with certain figures in the balance sheet.
254
Using the value from the capitalization equation as the value of _______ on the balance sheet is highly speculative.
[property]
255
How is property typically valued on the balance sheet?
Much lower than the value from the capitalization equation.
256
What is the implication of property being valued lower on the balance sheet?
It indicates a more conservative approach to asset valuation.
257
True or False: The valuation of property on the balance sheet is always accurate.
False
258
What are the key figures analyzed in financial reports?
Total assets, owner's equity, net worth
## Footnote
These figures are essential for understanding the financial health of an entity.
259
Fill in the blank: Financial reports include figures like total assets, ________, and net worth.
owner's equity
260
True or False: Net worth is one of the key figures in financial reports.
True
261
What is the significance of total assets in financial reports?
Indicates the total resources owned by an entity
## Footnote
Total assets provide insight into the scale and capacity of an organization.
262
Define owner's equity in the context of financial reports.
The residual interest in the assets of the entity after deducting liabilities
## Footnote
Represents the owner's claim on the assets.
263
What does net worth represent in financial terms?
The difference between total assets and total liabilities
## Footnote
It is a measure of the financial position of an entity.
264
What are the key figures analyzed in financial reports?
Total assets, owner's equity, net worth
## Footnote
These figures are essential for understanding the financial health of an entity.
265
Fill in the blank: Financial reports include figures like total assets, ________, and net worth.
owner's equity
266
True or False: Net worth is one of the key figures in financial reports.
True
267
What is the significance of total assets in financial reports?
Indicates the total resources owned by an entity
## Footnote
Total assets provide insight into the scale and capacity of an organization.
268
Define owner's equity in the context of financial reports.
The residual interest in the assets of the entity after deducting liabilities
## Footnote
Represents the owner's claim on the assets.
269
What does net worth represent in financial terms?
The difference between total assets and total liabilities
## Footnote
It is a measure of the financial position of an entity.
270
What is the main purpose of a report?
To portray past events accurately in an accessible format that communicates information readily to persons inside and outside the organization.
271
What are the main differences between reports for internal use and reports for external use?
Reports for internal use include more detail about specific financial transactions and managerial assumptions, while reports for external use focus on an overall financial picture and meet the requirements of lenders and investors.
272
What information appears on an income statement?
Broad categories of income, expenses grouped as operating expenses, depreciation, interest payments, payments on loan principals, and calculated taxes to give net income.
273
Are assets and income the same kind of financial transaction?
No, assets are economic resources while income is normally a cash inflow.
274
How long a time span does the term current cover when used in a balance sheet?
Current assets and liabilities are short term, generally used within twelve months.
275
What does the current ratio measure?
The ability to pay debt and other obligations.
276
What is the primary benefit students gain from a course on financial topics?
Learning how to draw on interrelated concepts to make a well-informed decision.
277
What three basic documents are provided to help answer questions in the case study?
* Cornerstone Plaza's year-end budget report
* Chart of accounts
* Rent roll
278
What is the recommended class size for conducting a general discussion in the case study?
Smaller class
279
Where is Cornerstone Plaza located?
City of Santa Shannon, California
280
What type of shopping center is Cornerstone Plaza?
Specialty shopping center
281
What historic building was renovated to create Cornerstone Plaza?
Former courthouse
282
What design features does Cornerstone Plaza incorporate?
* Original brick walls
* Large new addition
* Landscaped open courtyard
* Covered sidewalks
283
What demographic does Cornerstone Plaza cater to?
Upper-middle-class families
284
In what year of operation is Cornerstone Plaza currently?
Second year
285
What is the focus of budgeting after two years of experience with costs and expenses?
Careful monitoring of financial performance
286
What does the year-end budget report show?
A long list of operating expenses
287
What decision must a manager make regarding the budget?
Whether enough has been budgeted for each line item and the assumptions themselves.
288
What is an operating budget?
A financial plan for the operations of a property over a specific period.
289
How is an operating budget developed for a new building?
It is tied to the chart of accounts and involves standard categories reflecting all financial activity.
290
What is the purpose of a chart of accounts?
To categorize all financial transactions and activities within an organization.
291
What are fixed costs?
Costs that do not change with the level of output or activity.
292
What are variable costs?
Costs that vary directly with the level of output or activity.
293
What is zero-based budgeting?
A budgeting method where every expense must be justified for each new period.
294
What is the significance of local property taxes in budgeting?
They are a mandatory expense that must be accounted for in the operating budget.
295
What role do receivables and payables play in financial management?
They represent money owed to the business and money the business owes, respectively.
296
What factors should be considered when budgeting for insurance?
Adequacy of coverage and premium comparison with similar properties.
297
What is the implication of a budget variance?
It indicates the difference between budgeted and actual figures, necessitating analysis.
298
Fill in the blank: Insurance premiums are agreed upon between the _______ and the insured.
[insurance company]
299
How can contracts be used to determine budget figures?
Fees agreed upon in contracts can be entered into the budget as proposed figures.
300
Is it worth investigating differences between budgeted and actual spending?
Yes, it can reveal issues in budget assumptions or contract adherence.
301
What does the budgeted amount for landscaping/repair indicate?
It reflects planned expenditures for miscellaneous landscape repairs.
302
True or False: The actual figure spent on steam cleaning should always match the budgeted amount.
False.
303
What is meant by operating expenses?
Regular costs incurred during the operation of a property.
304
What is the first step in creating an operating budget for a new building?
Determine when the building will be ready for occupancy.
305
What is the relevance of a cash budget in the first month of operation?
It helps manage liquidity and ensure sufficient cash flow for expenses.
306
What is the relationship between steam cleaning and costs?
Steam cleaning is a variable cost tied to use.
307
Is the assumption regarding Landscaping/Repair budgeted for $200 clear?
No, the assumption 'Misc. landscape repairs' is not clear.
308
What are two possibilities for the unclear assumption in Landscaping/Repair?
* Management may not identify small line items in the budget
* The figure may have been carried from the previous year without questioning
309
How should parking lot repair be budgeted?
Parking lot repair should be budgeted as its own line item.
310
What is the total cost for the two benches and two planters?
$1,600.
311
What assumptions are made for Utilities/Electrical, and what effects did they have?
The budget was based on the previous year's figure and a new electrical rate went into effect, producing an unfavorable variance.
312
Why might 'Advertising' be left at zero in the budget?
It seems likely that a shopping plaza operating for two years would have an advertising budget.
313
What should the site manager determine regarding the lack of advertising?
The site manager should try to determine why no advertising is scheduled.
314
How does variance analysis help in budgeting for the next year?
By analyzing each variance, the site manager can question the assumptions made in the current year's figures.
315
What is the budgeted amount for property taxes?
$38,500.
316
How do local property taxes factor into the decision to buy and operate a building?
Local property taxes are a major factor in decision making and are taken into account in the buying decision.
317
What can be done to control property taxes?
Monitoring them and appealing them if necessary.
318
Why is location important in real estate?
Location is paramount in real estate.
319
What effect does Cornerstone Plaza's location have on its potential for success?
It influences its uses and potential for success.
320
What are the two special figures that get attention in real estate income?
Net operating income (NOI) and bottom-line cash flow.
321
How is net operating income (NOI) calculated?
NOI is derived from effective gross income by subtracting operating expenses.
322
What is the significance of net operating income in real estate?
It is a widely used gauge of a property's financial health.
323
What is the relationship between NOI and bottom-line cash flow?
Debt service is subtracted from NOI to get bottom-line cash flow.
324
What is included in the concept of cash flows?
All moneys coming to Cornerstone Plaza as income and leaving as expenses.
325
What does a monthly cash-flow budget monitor?
It monitors the inflows and outflows of money.
326
Fill in the blank: Net operating income is derived from effective gross income by subtracting _______.
operating expenses.
327
True or False: There were capital expenses at Cornerstone Plaza last year.
False.
328
What is the process of organizing the payment and receipt of money in real estate called?
Budgeting.
329
What are the two categories that real estate income typically falls into?
Net operating income (NOI) and bottom-line cash flow.
330
What should be considered when discussing the restoration of historic properties?
Specific difficulties encountered in restoring and reusing them.
331
What is the purpose of creating systems for organizing money in real estate?
To manage the inflows and outflows of money.
332
Why is location important in real estate?
Location is paramount in real estate.
333
What effect does Cornerstone Plaza's location have on its potential for success?
It influences its uses and potential for success.
334
What are the two special figures that get attention in real estate income?
Net operating income (NOI) and bottom-line cash flow.
335
How is net operating income (NOI) calculated?
NOI is derived from effective gross income by subtracting operating expenses.
336
What is the significance of net operating income in real estate?
It is a widely used gauge of a property's financial health.
337
What is the relationship between NOI and bottom-line cash flow?
Debt service is subtracted from NOI to get bottom-line cash flow.
338
What is included in the concept of cash flows?
All moneys coming to Cornerstone Plaza as income and leaving as expenses.
339
What does a monthly cash-flow budget monitor?
It monitors the inflows and outflows of money.
340
Fill in the blank: Net operating income is derived from effective gross income by subtracting _______.
operating expenses.
341
True or False: There were capital expenses at Cornerstone Plaza last year.
False.
342
What is the process of organizing the payment and receipt of money in real estate called?
Budgeting.
343
What are the two categories that real estate income typically falls into?
Net operating income (NOI) and bottom-line cash flow.
344
What should be considered when discussing the restoration of historic properties?
Specific difficulties encountered in restoring and reusing them.
345
What is the purpose of creating systems for organizing money in real estate?
To manage the inflows and outflows of money.
346
Why is location considered paramount in real estate?
Location affects the uses and potential for success of a property
347
What is the significance of Cornerstone Plaza's location?
It is in a renovated building in the historic downtown of Santa Shannon
348
What are the categories of income in real estate?
Income in real estate falls into fewer categories than operating expenses
349
What does budgeting income allow a site manager to do?
Manage the inflows and outflows of money
350
What are the two key figures in real estate that get special attention?
* Net operating income (NOI) * Bottom-line cash flow
351
How is net operating income (NOI) calculated?
NOI is derived from effective gross income by subtracting operating expenses
352
What does NOI indicate?
A property's financial health
353
What is subtracted from NOI to determine bottom-line cash flow?
Debt service
354
What does the term 'cash flows' encompass?
All moneys coming to and leaving from Cornerstone Plaza
355
Fill in the blank: Effective gross income is derived by subtracting ______ from gross potential rent income.
Operating expenses
356
What is the purpose of a monthly cash-flow budget?
To monitor the fluid situation of cash inflows and outflows
357
List some concepts to consider in real estate.
* Capitalization * Effective gross income * Gross potential rent income * Miscellaneous income * Net operating income (NOI) * Pro forma budget * Receivables * Return on investment
358
True or False: There were capital expenses at Cornerstone Plaza last year.
False
359
How can you determine that Cornerstone Plaza is not yet fully occupied?
Both Rental Income and CAM Income assume 100 percent occupancy. The actual figures fall short of the budgeted figures in both line items.
360
What is display case income?
Income from renting display cases to tenant stores for showcasing their merchandise.
361
What benefits does Cornerstone Plaza receive from display case income?
Miscellaneous income from the display cases and additional marketing done by the stores.
362
How do the stores benefit from display case income?
An additional point to market their offerings and a presence in a highly trafficked area within Cornerstone Plaza.
363
When would Cornerstone Plaza have had a pro forma budget?
During the earliest stages of the project, when plans for redeveloping the courthouse into Cornerstone Plaza were being made.
364
What would have replaced the pro forma budget?
The first year's operating budget and the first month's cash budget as soon as tenants committed to the project.
365
What are some techniques for managing cash flow?
Monthly monitoring of cash inflows and outflows, and careful management of receivables.
366
When can techniques for managing cash flow be implemented?
As soon as cash begins to enter a business.
367
True or False: Managing cash flow can be put off while other seemingly important tasks are dealt with.
False
368
Fill in the blank: Cornerstone Plaza has ______ display cases.
[three]
369
What is the purpose of the capital reserves set aside by the owner of Cornerstone Plaza?
To prepare for capital expenses that may be incurred in the next few years
## Footnote
The owner placed $35,000 in capital reserves for future expenses
370
What two areas of managing a building are particularly affected by the time value of money?
Debt service and capital budgeting
## Footnote
Both areas involve long-term financial planning
371
What is the yearly debt service amount for Cornerstone Plaza?
$110,049.31
## Footnote
This amount is part of the financial obligations of the shopping center
372
Where do debt service and capital show up in the financial reports?
Between NOI and the ending cash-flow figure
## Footnote
This placement reflects their impact on financial health
373
Why is preparing a capital budget important for a new development like Cornerstone Plaza?
It stimulates planning for the property's future economic needs
## Footnote
A capital budget is a management tool for forecasting
374
What kinds of capital improvements might be planned for Cornerstone Plaza?
* Renovation of the courtyard
* Replacement or major repairs to brick walkways
* Restorations of the historic part of the development
* Additions to the new building
## Footnote
These improvements may be needed in as few as three or four years
375
What decision questions should be considered regarding Cornerstone Plaza?
* Why a capital budget is needed
* What expenses a site manager needs to plan for
* What marketing information the owner would gather
## Footnote
Each question addresses different aspects of financial planning and management
376
Fill in the blank: The __________ formula is used for the calculation of value.
IRV
## Footnote
The IRV formula relates to income, rate, and value in real estate
377
True or False: The time value of money does not affect the financial health of Cornerstone Plaza.
False
## Footnote
The time value of money greatly affects financial health
378
What is the purpose of the capital reserves set aside by the owner of Cornerstone Plaza?
To prepare for capital expenses that may be incurred in the next few years
## Footnote
The owner placed $35,000 in capital reserves for future expenses
379
What two areas of managing a building are particularly affected by the time value of money?
Debt service and capital budgeting
## Footnote
Both areas involve long-term financial planning
380
What is the yearly debt service amount for Cornerstone Plaza?
$110,049.31
## Footnote
This amount is part of the financial obligations of the shopping center
381
Where do debt service and capital show up in the financial reports?
Between NOI and the ending cash-flow figure
## Footnote
This placement reflects their impact on financial health
382
Why is preparing a capital budget important for a new development like Cornerstone Plaza?
It stimulates planning for the property's future economic needs
## Footnote
A capital budget is a management tool for forecasting
383
What kinds of capital improvements might be planned for Cornerstone Plaza?
* Renovation of the courtyard
* Replacement or major repairs to brick walkways
* Restorations of the historic part of the development
* Additions to the new building
## Footnote
These improvements may be needed in as few as three or four years
384
What decision questions should be considered regarding Cornerstone Plaza?
* Why a capital budget is needed
* What expenses a site manager needs to plan for
* What marketing information the owner would gather
## Footnote
Each question addresses different aspects of financial planning and management
385
Fill in the blank: The __________ formula is used for the calculation of value.
IRV
## Footnote
The IRV formula relates to income, rate, and value in real estate
386
True or False: The time value of money does not affect the financial health of Cornerstone Plaza.
False
## Footnote
The time value of money greatly affects financial health
387
What factors are involved in market research for developing a retail center?
Factors include:
* Competing centers in the area
* Ages and sizes of stores
* Target market segment
* Mix of tenants
* Building amenities
388
How does marketing information impact cash flow in a retail center?
Marketing information helps determine:
* Rent
* Building amenities
* Upkeep
* Signage
* Potential sales by tenants
389
What should be included in a study of nearby office buildings when analyzing a retail center's market?
The study should include:
* Local office vacancy rates
* Typical tenants
* Rent charged
* Building amenities
390
What government actions should be ascertained in market research for a retail center?
Actions include:
* Existence of a comprehensive city plan
* Effects of zoning on development
* Special tax districts or historic designations
391
Why is a system for monitoring budget variances important?
It allows managers to:
* Assess how well the budget plan works
* Track shortfalls in income
* Identify unusual expenses
* Prepare new plans and budgets
392
What is capital budgeting and its significance in managing a property?
Capital budgeting involves planning improvements and is included in:
* Year-end reports
* Balance sheets
393
How do different kinds of budgets and financial reports interact?
They reinforce each other by:
* Monthly cash-flow budgets shaping yearly operating budgets
* Operating budgets affecting assets and liabilities
394
What role does reporting play in property management?
Reporting helps in:
* Internal decision making
* Planning capital improvements
* Attracting customers through marketing
* Finding new tenants through advertising
395
What obligations does reporting satisfy for a property like Cornerstone Plaza?
Reporting satisfies obligations to:
* Potential investors
* Lending institutions
* Taxing bodies
396
How should a building's leases be viewed in financial planning?
Leases should be viewed as assets.
397
Fill in the blank: A budget is a plan, but it is not _______.
[static]
398
What is the significance of leases in financial planning?
Leases are considered assets and the rent roll serves as a monthly report on the state of those assets.
## Footnote
Leases reflect obligations between tenant and landlord, and successful tenants lead to greater cash flow for owners.
399
What does Cornerstone Plaza's rent roll indicate?
It shows how the maximum rent can be derived from each tenant.
## Footnote
The rent roll is crucial for assessing the financial health of the property.
400
What is the IRV formula used for?
Calculation of value.
## Footnote
IRV stands for Income/Rate=Value.
401
List some concepts to consider in financial reporting.
* Capitalization techniques
* The IRV formula
* Leases
* Managing cash flow
* Net worth
* Record keeping
* Rent roll
* Return on investment
* The site manager's role in meeting financial goals
402
What are the major differences between commercial leases for store owners and those for tenants in office buildings?
Differences include negotiation processes, space planning roles, rent calculations, adjustments, and dispute resolutions.
## Footnote
Participants with experience in office leasing and retail leasing can provide insights based on their expertise.
403
Fill in the blank: A building's _______ can be used in financial planning.
leases
404
True or False: The success of a tenant has no impact on the cash flow to the owner.
False
## Footnote
Successful tenants contribute to greater cash flow for property owners.
405
What is included in the decision questions related to commercial leases?
Differences in commercial leases between store owners and office tenants.
## Footnote
Discussion should involve class members with expertise in different leasing areas.
406
What does net worth show?
It reflects the financial position of an individual or organization.
## Footnote
Understanding net worth is crucial for financial analysis.
407
What does net worth show?
Net worth can be calculated by subtracting total liabilities from total assets. Net worth is the owner's equity.
408
What is the IRV equation used for?
The IRV equation is used to establish value in real estate, leading to capitalization techniques.
409
What are the capitalization techniques in real estate?
Direct capitalization and income capitalization techniques.
410
Why is establishing value important in real estate?
It allows decision makers to gauge whether money spent on a property is being spent effectively.
411
How does value affect the day-to-day operations of a property?
Increasing the value of the property is central to the site manager's goals.
412
What are some financial decisions that impact property value?
Examples include:
* Restoration or renovation of public areas
* Replacement of major parts of the physical plant
* Changes in signage
* Additions to the shopping center
413
Fill in the blank: Net worth is calculated by subtracting total liabilities from total _______.
assets
414
True or False: Financial decisions about managing a property have little impact on its value.
False
415
What does GPRI stand for?
Gross Potential Rental Income
416
What does MI / OI / AI represent in the budgeting process?
Miscellaneous Income
417
In the budgeting process, what is subtracted from GPRI and MI to calculate EGI?
Vacancy and Rent Loss
418
What does EGI stand for?
Effective Gross Income
419
What is subtracted from EGI to determine NOI?
Operating Expenses
420
What does NOI stand for?
Net Operating Income
421
What expenses are deducted from NOI to calculate Cash Flow?
Capital Expenditures and Debt Service
422
What does CapEx stand for?
Capital Expenditures
423
What does DS stand for in the budgeting process?
Debt Service
424
What is the final calculation called after subtracting CapEx and DS from NOI?
Cash Flow
425
Fill in the blank: Gross Potential Rental Income + Miscellaneous Income - Vacancy and Rent Loss = _______.
Effective Gross Income
426
True or False: Cash Flow is calculated by subtracting Operating Expenses from Effective Gross Income.
False
