Terms

Question 1

Cash - Basis Accounting

Answer 1

Income that was received and all the salaries and expenses were paid (checkbook approach). An income that is recognized when it comes in and an expense is recognized when it is paid - when money is exchanged. This one is used to file taxes and pay the quarterly and year-end taxes.
(smaller firms)

Question 2

Balance Sheet

Answer 2

Shows the firms financial condition at any time.

Question 3

Profit-Loss Statement

Answer 3

Is the financial management report that summarizes revenue and expenses and shows the profit or loss of a business for a specified accounting period. There are 2 types cash basis and accrual basis.

Question 4

Accrual Base Accounting

Answer 4

A method of accounting in which revenue is recognized in the period in which work is performed, and expenses are recognized in the period in which they occur, without the regard to the timing of the exchange of cash. It is usually in a timeframe of a year. Payments that are owed to the firm or payments that the firm owes. Holds on to everything, every dollar that has gone out or come in. Most firms use this approach to develop their P-L and Balance Sheet.

Question 5

Reimbursable Expenses

Answer 5

These are Expenses that are charged to the client besides the regular fees.
These include a markup percentage which are considered revenue and are included in the Net Operating Revenue.

Question 6

Direct Labor

Answer 6

Also called Direct Salary.
This is the time that is charged to a project by everyone. (invoiced or not)

Question 7

Direct Expenses

Answer 7

These are non-reimbursable expenses that can be charged to a project.

Question 8

Indirect Labor

Answer 8

Also Indirect Salary.
This is the time charged to non-project related activities by everyone.

Question 9

Net Profit

Answer 9

This is the amount of money the firm has left after deducting all direct and indirect labor (salaries), and indirect expenses. It is the money before taxes are paid or distributions are made.

Question 10

Indirect Expenses

Answer 10

Expenses that cannot be charged directly to a project. Indirect costs include supplies, utilities, office equipment rental, desktop computers and cell phones. Much like direct costs, indirect costs can be fixed or variable. Fixed indirect costs include expenses such as rent; variable indirect costs include fluctuating expenses such as electricity and gas.

Question 11

Break-Even Rate

Answer 11

The Break-Even Rate is your cost of doing business for every dollar of salary you pay your employee.
It’s the overhead rate plus 1.00.
Example:
Overhead is $1.30, plus $1.00 - break even rate is $2.30 —> that means for every $1.00 of salary the firm must make $2.30 to break even.

Question 12

Net Operating Revenue (NOR)

Answer 12

Is the money the firm has left after deducting all the invoices from the consultant and the expenses plus all reimbursable and the non-reimbursable project related expenses.

Question 13

Hourly Billed Rate

Answer 13

Is the amount that is charged to the client for hours of direct labor.

Question 14

Long term Liabilities

Answer 14

These are items that must be paid beyond the current 12 months period and reduce the impact of the value of a firms retained earnings.
Example:
- long term lease
- insurance

Question 15

Equity

Answer 15

Is the value of stock shares, the invested capital by shareholders and the firm’s cumulative retained earnings.

Question 16

SPI

Answer 16

Schedule Performance Index

SPI = Earned / Expected

• 1 means you’re right on schedule
• below 1 means you’re behind schedule
• above 1 means you’re ahead of schedule

Question 17

Current Assets

Answer 17

Those are the items that are easily converted to real dollars.

Question 18

Current Earnings

Answer 18

Is the money the firm has actually left after all distributions are made and all taxes are deducted.

Question 19

Current Liabilities

Answer 19

These are items that must be paid within the current 12 months period. It is irrespective of the calendar year. Those items diminish a firm’s retained earnings and thereby reduce equity.

Question 20

Overhead Rate

Answer 20

Measures the cost of operations not directly attributed to projects.

Total indirect labor / total direct labor

Question 21

Statue of Limitation

Answer 21

The statute of limitations is a law that sets the maximum amount of time that parties in a dispute have to initiate legal proceedings. The length of time allowed under a statute of limitations varies depending upon the severity of the offense as well as the jurisdiction it is being disputed.

Question 22

Statue of Repose

Answer 22

A law that extinguishes a right of action after a specified period of time has elapsed, regardless of whether the cause of action has accrued. Courts generally find that statutes of repose begin to run without interruption once the triggering event occurs

Question 23

Accounts Payable

Answer 23

Is the total dollar amount of invoices that the firm has received from consultants and vendors and which the firm has not paid. Accounts payable are regarded as a current liability on the firms Balance Sheet.

Question 24

Accounts Receiveable

Answer 24

Is the total dollar amount of invoices your firm has submitted to the client and for which payment has not been received. Regarded as Current Asset on the Balance Sheet.

Question 25

Budget

Answer 25

Projection of future revenue and expenses for a specific time period.

Question 26

Capital

Answer 26

Cash or goods invested in a firm by its shareholders to support business operation.

Question 27

Liability

Answer 27

An obligation to pat a debt, something you owe to someone else.

Question 28

Net Multiplier

Answer 28

The ratio of net operating revenue to total direct labor. It tells you how many dollars of revenue your firm is generating for every dollar spent on direct labor. If the net multiplier is less than the break-even rate then the firm is operating at a loss.

Question 29

Solvency

Answer 29

A measure of a firms ability to meet its current debt. Often referred to as current ratio - ratio of firms total current assets and total current liabilities.

Question 30

7 Key Financial Performance Indicators

Answer 30

• Utilization Rate
• Overhead Rate
• Break-Even Rate
• Net Multiplier
• Aged Accounts Receivable
• Profit to Earnings Ratio
• Net Revenue per Employee