74 Questions
What is the purpose of an Aging Report?
To keep track of invoices due and past due
How is the Average Collection Period calculated?
Accounts receivable divided by gross revenue x 365
What does Bad Debt represent?
The amount of accounts receivable that will not be collected from clients
Which financial statement provides a snapshot of the practice's financial position at a specific point in time?
Balance Sheet
What does Accounts Payable represent?
Amount payable to consultants and suppliers for expenses
What does the Cash Book primarily track?
Day-to-day cash position using accrual accounting method
What is the primary purpose of time reports or time sheets?
To provide summaries of time spent on each task or service
How should the type of service and phase of the project be identified in time reports?
Accurately identified
If a fee for schematic design is budgeted at $12,000 and the hourly wage is $40, how many hours should be budgeted?
96 hours
If an individual has a utilization rate of 90% and works 37.5 hours per week, how many billable hours should be budgeted per week?
33.75 hours
According to the passage, what is the recommended practice when reviewing time sheets?
Review them in conjunction with the progress of the work
What does the accrual system in accounting record?
All income and expenses as they occur
Which accounting method are architecture businesses required to follow for tax returns?
Accrual basis
What is the primary focus of the income statement in financial reporting?
Profitability and growth
What is the formula for calculating profit or loss on an income statement?
Income - Expenses
What does the balance sheet provide information about?
Financial position at a given period
Why is cashflow vital for an architectural practice?
To stay in business
What type of financial reports are prepared using the accrual system?
Income Statement and Balance Sheet
What does the basic formula of the balance sheet represent?
$$ Assets = Liabilities $$
What is another name for the income statement in financial reporting?
(Revenues - Expenditures)
Why is it important for architects running a practice to understand their financial statements?
To monitor the business' financial health
What is the purpose of requesting proposals from other accounting firms?
To compare services and value
When can architects hire non-CPAs or bookkeepers instead of CPAs?
Depending on the size of the firm
What is the purpose of establishing a capital reserve for an architect's practice?
To prepare for long-term financial stability
What is the advantage of negotiating a line of credit with a bank instead of short-term loans?
Lower interest rates
What does the bank generally require if the amount requested for borrowing funds is high?
Higher percentage rate of interest over 'prime'
Why should architects provide complete records of past performance, budgets, and financial plans when borrowing funds?
To assist the banker in deciding on a line of credit
What types of information can assist the architect in preparing accurate budgets and controlling expenses?
Complete records of past performance
"All projects should generate a profit" - What is the only possible exception to this principle?
"Long-range or short-term strategies"
When is the best time to negotiate for a line of credit with a bank?
When financing is not required
What determines the interest rate quoted by the bank for financing architectural practices?
The bank's perception of risk and 'prime rate'
What does the current ratio measure?
Liquidity risk of the business
What does the debt to equity ratio indicate if debt is higher than equity?
The business is overburdened by debt
What does depreciation/amortization account for?
Loss in value of an asset as it ages
What is included in direct personnel expense?
Employee benefits and salary
What does the labour multiplier represent?
Return on investment in direct labour costs
What is considered when calculating the overhead rate?
Total indirect labour costs
Why is it important for the fiscal year-end to correspond to the end of the calendar year?
To optimize tax payments based on a calendar year
What is not part of current liabilities?
Accounts receivable
What does the debt to equity ratio formula calculate?
Liabilities divided by shareholders' equity
What is the purpose of estimating the fees for schematic design according to the text?
To check if the proposed fee is sufficient for the contracted services and profit realization
How can billing rates be established effectively according to the text?
By converting annual salaries to hourly direct personnel expenses
What factor is included in the multiplier used to determine billing rates?
Overhead plus profit
Why should utilization factors be monitored regularly according to the text?
Due to a direct correlation with high revenue potential
What does the utilization factor measure according to the text?
The total billable hours possible compared to actual billable hours
What is NOT included in billing rates according to the text?
$40 hourly wage for an employee
What is the formula for calculating profit margin?
Net profit divided by net revenue x 100
How are project costs monitored and controlled efficiently according to the text?
$100 tip for rolling up work packages
What should the investment of shareholders or partners in an architectural practice earn?
The bank's prime rate of interest plus an additional reasonable percentage
What is the starting point for financial planning in an architectural practice?
The revenue forecast
Which financial report documents all income, expenses, and the resulting profit or loss?
Statement of Income and Expenses
What records are used to calculate billing rates for staff members?
Staff Utilization Records
What should a financial plan identify for any new direction in an architectural practice?
Income and expenses projected for the new direction
What is the typical time period covered by short-term financial planning or budgeting?
12 months
What is necessary to attract talent, secure bank loans, and grow business operations?
Continuous generation of profits
What should budgets record in addition to projected income and expenses?
The previous year's revenue and expenses
What is included in Payroll Burden besides statutory benefits?
Discretionary benefits such as insurance and pension plans
What is the purpose of setting aside a percentage of profit as a capital reserve?
To ensure financial stability
What factors should projected income be adjusted for in an architectural practice?
The current and projected economy in the design-construction industry
What type of accounting is performed within an architectural practice?
Internal accounting or management accounting
What is the significance of the distribution of incentive bonuses to staff based on performance review factors?
To align rewards with performance
What level of assurance does a review provide regarding financial statements?
A lower level of assurance compared to an audit
What type of assurance do banks typically require when working to secure external funding?
A review
What are records of accounting considered?
Statutory requirements
Which financial statement provides a detailed explanation of the change in cash on the balance sheet?
Cashflow statement
What can help a firm be financially successful according to the text?
Using project management software
Why is it important for a company to have enough cash even if it's profitable on the income statement?
To pay for operations
What role do finance professionals like accountants play according to the text?
Assist with financial data
What does the cashflow forecast help in determining?
Cash required to meet expenses
How often should a cashflow forecast be monitored according to the text?
Monthly
What difference exists between profit and cash according to the text?
'Profit' is on the income statement, 'cash' is on the balance sheet
Who can work with financial data according to the text?
'Finance professionals'
What is essential for a good relationship between an architect and an accountant?
'Building trust and transparency'
What is a CPA responsible for according to the text?
Adhering to professional standards
Test your knowledge of accounting terminologies such as Accounts Payable, Accounts Receivable, Aging Reports, and Amortization. Learn about key factors in liquidity like Average Collection Period (ACP).
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