Terms Flashcards
Cash - Basis Accounting
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)
Balance Sheet
Shows the firms financial condition at any time.
Profit-Loss Statement
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.
Accrual Base Accounting
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.
Reimbursable Expenses
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.
Direct Labor
Also called Direct Salary.
This is the time that is charged to a project by everyone. (invoiced or not)
Direct Expenses
These are non-reimbursable expenses that can be charged to a project.
Indirect Labor
Also Indirect Salary.
This is the time charged to non-project related activities by everyone.
Net Profit
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.
Indirect Expenses
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.
Break-Even Rate
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.
Net Operating Revenue (NOR)
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.
Hourly Billed Rate
Is the amount that is charged to the client for hours of direct labor.
Long term Liabilities
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
Equity
Is the value of stock shares, the invested capital by shareholders and the firm’s cumulative retained earnings.
SPI
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
Current Assets
Those are the items that are easily converted to real dollars.
Current Earnings
Is the money the firm has actually left after all distributions are made and all taxes are deducted.
Current Liabilities
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.
Overhead Rate
Measures the cost of operations not directly attributed to projects.
Total indirect labor / total direct labor
Statue of Limitation
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.
Statue of Repose
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
Accounts Payable
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.
Accounts Receiveable
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.
Budget
Projection of future revenue and expenses for a specific time period.
Capital
Cash or goods invested in a firm by its shareholders to support business operation.
Liability
An obligation to pat a debt, something you owe to someone else.
Net Multiplier
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.
Solvency
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.
7 Key Financial Performance Indicators
- Utilization Rate
- Overhead Rate
- Break-Even Rate
- Net Multiplier
- Aged Accounts Receivable
- Profit to Earnings Ratio
- Net Revenue per Employee
