26 Questions
According to the information provided, what is the primary determinant of the ultimate health of the architecture industry?
The growth of the construction industry
What has been the average yearly addition of nonresidential building square feet in the U.S. since 1980?
1.3 billion square feet
What were the construction levels in 2010 and 2011 in comparison to the average yearly addition of nonresidential building square feet since 1980?
About half the average
What does the text suggest about the prospects for strong growth in the U.S. construction industry?
Promising, even during cyclical downturns
What is the main focus of financial management in design firms?
Monitoring and managing a firm's financial resources
Which of the following is considered crucial for managing a design firm financially?
Understanding the Profit-Loss Statement and Balance Sheet
When should the development of annual budgets and profit plans ideally begin?
Before the new year
What distinguishes accrual-basis accounting reports from financial management reports?
Accrual-basis reports provide a more comprehensive view of a firm's financial situation
Which of the following is a key term in financial management reports?
Hourly billing rate
What is the main purpose of financial management reports?
Anticipating financial performance and responding to trends
What is the purpose of the Mattox Format?
To assess profitability and performance of professional design firms
Which components are included in the Mattox Format's profit-loss statement?
Revenue, direct labor, indirect expenses, and miscellaneous revenue/expenses
What are some of the key financial performance indicators provided by the Mattox Format?
Net profit, true overhead rate, and five others
Why should professional design firms establish specific financial performance goals?
Based on current financial status and market conditions
How can a realistic net billing and revenue projection goal be established within the profit plan?
By identifying current projects under contract and outstanding project proposals
What does a firm's total revenue in the Mattox Format include?
Project consultant fees and miscellaneous revenue/expenses
What type of businesses typically use cash-basis profit-loss reports?
Small businesses without employees
What does a cash-basis report not reflect?
The timing correlation between income and expenses
What do accrual-basis reports consider?
The invoices sent to clients for monthly revenue earnings
What does the accrual-basis profit-loss statement establish?
Net profit for a firm
Why are both cash-basis and accrual-basis reports important for financial management?
To indicate cash flow management effectiveness and tax liability
What does the modified accrual-basis report record?
Only the revenue from invoiced fees and expenses
What is important to maintain to ensure timely net profit distributions?
A healthy cash-on-hand balance
What do conventional accounting formats not facilitate easy calculation of?
Revenue from invoiced fees and expenses
'Who' are responsible for reviewing and monitoring financial data?
'Firm leaders' are responsible for reviewing and monitoring financial data.
What does the cash-basis report do for tax liability calculations?
Indicates cash flow management effectiveness and tax liability.
Study Notes
- The text discusses the differences between cash-basis and accrual-basis profit-loss reports.
- Cash-basis reports are used by small businesses without employees and indicate only the income received and expenses paid within a specific accounting period.
- Cash-basis reports do not reflect the timing correlation between income and expenses.
- Accrual-basis reports, on the other hand, do not consider the actual receipt or payment of money.
- Accrual-basis reports reflect the invoices sent to clients for monthly revenue earnings based on hours worked and expenses incurred.
- The accrual-basis profit-loss statement establishes the net profit for a firm and the calculation of seven key financial performance indicators.
- Both cash-basis and accrual-basis reports are important for financial management.
- The cash-basis report indicates cash flow management effectiveness and tax liability, while the accrual-basis report indicates net profit.
- The modified accrual-basis report records only the revenue from invoiced fees and expenses.
- It is important to maintain a healthy cash-on-hand balance to ensure timely net profit distributions.
- Conventional accounting formats do not facilitate easy calculation of financial performance indicators, and the Mattox format is an alternative for easy understanding of financial performance indicators.
- Firm leaders are responsible for reviewing and monitoring financial data, and both accounting and financial reports are needed for sound business decisions.
- The cash-basis report and modified accrual-basis report are different and should not be compared directly.
- The cash-basis report is used for tax liability calculations, while the modified accrual-basis report provides an accurate snapshot of a given accounting period.
Test your knowledge of cash-basis and accrual-basis reports and their applications in financial planning. Understand the differences between the two and when each might be used in a firm.
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