Accounting Terminology Quiz

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What is the purpose of an Aging Report?

To list out all assets and liabilities

To calculate the Average Collection Period

To record professional fees and disbursements

To keep track of invoices due and past due (correct)

How is the Average Collection Period calculated?

Accounts receivable divided by gross revenue x 365 (correct)

Total assets divided by total liabilities

Cash balance divided by accounts payable

Total expenses minus total revenue

What does Bad Debt represent?

The amount of accounts receivable that will not be collected from clients (correct)

The total assets of the practice

Income generated from professional fees

The cash position of the practice

Which financial statement provides a snapshot of the practice's financial position at a specific point in time?

Balance Sheet Signup and view all the answers

What does Accounts Payable represent?

Amount payable to consultants and suppliers for expenses Signup and view all the answers

What does the Cash Book primarily track?

Day-to-day cash position using accrual accounting method Signup and view all the answers

What is the primary purpose of time reports or time sheets?

To provide summaries of time spent on each task or service Signup and view all the answers

How should the type of service and phase of the project be identified in time reports?

Accurately identified Signup and view all the answers

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 Signup and view all the answers

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 Signup and view all the answers

According to the passage, what is the recommended practice when reviewing time sheets?

Review them in conjunction with the progress of the work Signup and view all the answers

What does the accrual system in accounting record?

All income and expenses as they occur Signup and view all the answers

Which accounting method are architecture businesses required to follow for tax returns?

Accrual basis Signup and view all the answers

What is the primary focus of the income statement in financial reporting?

Profitability and growth Signup and view all the answers

What is the formula for calculating profit or loss on an income statement?

Income - Expenses Signup and view all the answers

What does the balance sheet provide information about?

Financial position at a given period Signup and view all the answers

Why is cashflow vital for an architectural practice?

To stay in business Signup and view all the answers

What type of financial reports are prepared using the accrual system?

Income Statement and Balance Sheet Signup and view all the answers

What does the basic formula of the balance sheet represent?

$$ Assets = Liabilities $$ Signup and view all the answers

What is another name for the income statement in financial reporting?

(Revenues - Expenditures) Signup and view all the answers

Why is it important for architects running a practice to understand their financial statements?

To monitor the business' financial health Signup and view all the answers

What is the purpose of requesting proposals from other accounting firms?

To compare services and value Signup and view all the answers

When can architects hire non-CPAs or bookkeepers instead of CPAs?

Depending on the size of the firm Signup and view all the answers

What is the purpose of establishing a capital reserve for an architect's practice?

To prepare for long-term financial stability Signup and view all the answers

What is the advantage of negotiating a line of credit with a bank instead of short-term loans?

Lower interest rates Signup and view all the answers

What does the bank generally require if the amount requested for borrowing funds is high?

Higher percentage rate of interest over 'prime' Signup and view all the answers

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 Signup and view all the answers

What types of information can assist the architect in preparing accurate budgets and controlling expenses?

Complete records of past performance Signup and view all the answers

"All projects should generate a profit" - What is the only possible exception to this principle?

"Long-range or short-term strategies" Signup and view all the answers

When is the best time to negotiate for a line of credit with a bank?

When financing is not required Signup and view all the answers

What determines the interest rate quoted by the bank for financing architectural practices?

The bank's perception of risk and 'prime rate' Signup and view all the answers

What does the current ratio measure?

Liquidity risk of the business Signup and view all the answers

What does the debt to equity ratio indicate if debt is higher than equity?

The business is overburdened by debt Signup and view all the answers

What does depreciation/amortization account for?

Loss in value of an asset as it ages Signup and view all the answers

What is included in direct personnel expense?

Employee benefits and salary Signup and view all the answers

What does the labour multiplier represent?

Return on investment in direct labour costs Signup and view all the answers

What is considered when calculating the overhead rate?

Total indirect labour costs Signup and view all the answers

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 Signup and view all the answers

What is not part of current liabilities?

Accounts receivable Signup and view all the answers

What does the debt to equity ratio formula calculate?

Liabilities divided by shareholders' equity Signup and view all the answers

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 Signup and view all the answers

How can billing rates be established effectively according to the text?

By converting annual salaries to hourly direct personnel expenses Signup and view all the answers

What factor is included in the multiplier used to determine billing rates?

Overhead plus profit Signup and view all the answers

Why should utilization factors be monitored regularly according to the text?

Due to a direct correlation with high revenue potential Signup and view all the answers

What does the utilization factor measure according to the text?

The total billable hours possible compared to actual billable hours Signup and view all the answers

What is NOT included in billing rates according to the text?

$40 hourly wage for an employee Signup and view all the answers

What is the formula for calculating profit margin?

Net profit divided by net revenue x 100 Signup and view all the answers

How are project costs monitored and controlled efficiently according to the text?

$100 tip for rolling up work packages Signup and view all the answers

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 Signup and view all the answers

What is the starting point for financial planning in an architectural practice?

The revenue forecast Signup and view all the answers

Which financial report documents all income, expenses, and the resulting profit or loss?

Statement of Income and Expenses Signup and view all the answers

What records are used to calculate billing rates for staff members?

Staff Utilization Records Signup and view all the answers

What should a financial plan identify for any new direction in an architectural practice?

Income and expenses projected for the new direction Signup and view all the answers

What is the typical time period covered by short-term financial planning or budgeting?

12 months Signup and view all the answers

What is necessary to attract talent, secure bank loans, and grow business operations?

Continuous generation of profits Signup and view all the answers

What should budgets record in addition to projected income and expenses?

The previous year's revenue and expenses Signup and view all the answers

What is included in Payroll Burden besides statutory benefits?

Discretionary benefits such as insurance and pension plans Signup and view all the answers

What is the purpose of setting aside a percentage of profit as a capital reserve?

To ensure financial stability Signup and view all the answers

What factors should projected income be adjusted for in an architectural practice?

The current and projected economy in the design-construction industry Signup and view all the answers

What type of accounting is performed within an architectural practice?

Internal accounting or management accounting Signup and view all the answers

What is the significance of the distribution of incentive bonuses to staff based on performance review factors?

To align rewards with performance Signup and view all the answers

What level of assurance does a review provide regarding financial statements?

A lower level of assurance compared to an audit Signup and view all the answers

What type of assurance do banks typically require when working to secure external funding?

A review Signup and view all the answers

What are records of accounting considered?

Statutory requirements Signup and view all the answers

Which financial statement provides a detailed explanation of the change in cash on the balance sheet?

Cashflow statement Signup and view all the answers

What can help a firm be financially successful according to the text?

Using project management software Signup and view all the answers

Why is it important for a company to have enough cash even if it's profitable on the income statement?

To pay for operations Signup and view all the answers

What role do finance professionals like accountants play according to the text?

Assist with financial data Signup and view all the answers

What does the cashflow forecast help in determining?

Cash required to meet expenses Signup and view all the answers

How often should a cashflow forecast be monitored according to the text?

Monthly Signup and view all the answers

What difference exists between profit and cash according to the text?

'Profit' is on the income statement, 'cash' is on the balance sheet Signup and view all the answers

Who can work with financial data according to the text?

'Finance professionals' Signup and view all the answers

What is essential for a good relationship between an architect and an accountant?

'Building trust and transparency' Signup and view all the answers

What is a CPA responsible for according to the text?

Adhering to professional standards Signup and view all the answers