BOMI Chapter 1-14 Key Concept Study
Guide. Budgeting & Accounting
Cumulative
1-1. Which key components make up the bookkeeping process? (1-2&4) - answer Is the
process of recording and classifying transactions
(a financial event that is shown within a financial statement/report)
1-1a. What is budgeting (1-2)? - answerIt is an ongoing process coordinating resources
and expenditures. It is comprised of:
· Analysis of the past
· Benchmarking (reviewing performance metrics)
· Future Projections
1-1b. What does a budget reflect (1-2)? - answerA business' priorities and the resources
needed to accomplish those priorities.
1-1c. How do property and facility managers use periodic financial reports (1-3)? -
answerThey use them to make budgets and make business decisions to best balance
the needs of the occupants at the property and market forces with the goal of enhancing
the property value.
1-2. Describe the role(s) filled by an accountant during the holding period. (1-3) -
answer· Support managers by processing, controlling and reporting accounting data.
· Deliver accurate, meaningful and timely financial reports
(They support the PM, they do NOT to explain a variance.)
1-1d. What are transactions (1-3)? - answerA financial event that is recognized in a
financial statement or report.
They must be sorted into orderly, systematic, and logical classifications to properly
convey financial information.
1-2a. Describe the role(s) filled by a property manager during the holding period. (1-3) -
answer· Meeting the owner's goals and objectives, which usually include protecting and
growing the cash flow.
· Properly caring for the physical asset.
Both roles result in enhancing the value of the property, thus proving profit potential
upon sale.
1-3. What are the primary functions associated with accounting? (1-4) - answerIt is a
uniform and consistent system where financial data is:
,· Interpreted
· Summarized
· Communicated
1-4. Specify functions incorporated in the budgeting process. (1-4) - answerThe process
of planning and coordinating resources (cash/deposits) and expenditures (money spent)
1-5. Describe the accounting cycle types most common to the commercial real estate
management business. (1-5) - answer· Capital (property acquisition & financing)
· Conversion (non-monetary assets)
· Expenditure (Exchange for goods or services Ex. Utility services)
· Revenue (Exchange for cash Ex. Commercial Office Space)
1-5a. Define Revenue Cycle? (1-5) - answerIt includes the functions required to
exchange products or services with customers for cash.
1. Signing: A tenant signs a lease for office space.
2. Administering: Lease administered, includes assessing charges for use of space
3. Collecting: Rent & Services Revenue is collected.
4. Recording: Collected Revenue is recorded.
5. Reconciling: Summary of accounts confirmed and reconciled to make sure they
balance.
1-5b. Define Expenditure Cycle (1-6) - answerIncludes the functions that:
· Acquire property, goods, services, and labor
· Pay for them
· Classify, summarize, and report----what is acquired and what is paid for?
Ex. Labor-internal & external, Supplies, Utility Services etc.
1-5b1. Explain the 4 Steps in the Expenditure Cycle for the Acquisition of Goods and
Services. (1-7) - answerGoods and Services are:
1. Requested from vendor via PO or monthly contract.
2. Received and documented by receiving document or service record.
3. Vendor invoice is coded, approved, & processed for payment.
4. Check issued to vendor to pay invoice.
1-5c. What is an account (1-6)? - answerAn individual record of information and
transactions related to each asset or liability and each aspect of owner's equity.
1-6. What are the three summary account types? (1-9) - answer· Assets (everything a
company owns)
Ex. Cash, building & land, inventory supplies, office furniture
· Liabilities (funds borrowed—like mortgage)
Ex. Accounts payable, debts owed for equip & furniture, mortgages
· Owner's Equities (owner's money)
Everything remaining after liability is subtracted by the sum of all assets.
,1-6a. What is the basic accounting equation? (1-9) - answerOwner's Equities= Assets -
Liabilities
OR
Assets= Liabilities + Owner's Equity
OR
Assets= Liabilities + (Capital + Revenue-Expenses)
1-6b. What is true about both sides of the accounting equation? (1-9) - answerThey are
equal. Always.
1-7. How are debits and credits applied to the fundamental accounting equation? (1-11-
12) - answerThey are the backbone of accounting and are considered double entry
accounting.
1-7. How are debits and credits applied to the fundamental accounting equation? (1-11-
12) [In Terms of Owner's Equity] - answerCheat Sheet:
Increase revenue (asset)---credit
Increase expense (liability)---debit
For Assets & Owner: Opposite of what you'd think ***
For Liability:
Increase a liability (credit it) ***
Decrease a liability (debit it)
Remember: Double Entry Accounting
1-8. Explain the relationship between the balance sheet and summary accounts. (1-15)
- answerIt is a statement of the financial position of the business entity at a point in time.
For each type of account--assets, liabilities, or owner's equity--we can either increase or
decrease the balance.
(At C&W it's our operating statement)
1-8a. What are the three sets of books that companies typically keep (1-17)? TEST -
answerGeneral Journal
All transactions recorded in chronological order as they occur
Cash Journal/Cash Receipts
· Cash journal is receipts for each business day
· Cash receipts includes all transactions of the business (more detailed)
General Ledger
Detailed transactions by ledger of account.
1-8b. What is a trial balance? (1-18) - answerA component of the GL—which is a list
showing the title and balance of each account on the GL as of a specific date. It can be
used to check equality of debit and credit balances.
, 1-9. What are the generally accepted accounting principles (GAAP)? (1-19) - answer·
Common set of accounting principles, standards, and procedures
· Codified by the Financial Accounting Standards Board (FASB) (not international)
1-10. What are International Financial Reporting Standards (IFRS)? (1-19) - answer·
Established and maintained by International Accounting Standards Board.
· Used by many multinational companies in the US & Canada
1-11. What are internal reporting needs common to the real property industry? (1-20) -
answerNumerous activities must be monitored and reported to properly manage real
property such as:
· Tenant collections
· Vendor Payments
· Monthly Operating Results (income and expenses against the budget)
1-11a. What are the three basic external reports or standard financial statements that
businesses use? (1-20) TEST - answer· Income statement
· Balance Sheet
· Cash Flow Statement
1-12. Describe what an income statement is used for. (1-20) - answerIt shows revenues
earned and expenses incurred, resulting in net income and net loss for that period.
1-12a. Describe what a balance sheet is used for (1-20) - answerIt reflects the balances
of each asset, liability, and owner's equity account a point in time.
1-12b. What are accounts receivable? (1-20) - answerMonies that have been earned,
but not yet received by the company or business. They are recorded as assets on the
balance sheet.
1-12c. What are accounts payable? (1-20) - answerDebts owed to other businesses. On
the balance sheet, they are recorded as liabilities.
1-12d. Describe a cashflow statement (1-21) - answerDescribes the changes in cash
from one period to the next.
1-13. What are common accounting methods used for recording financial transactions?
(1-21) TEST - answerCash method:
Income and expenses are recorded only when they are received or paid out---Most
Basic.
Accrual basis accounting:
Records revenues and expenditures related to the period for which they are applicable,
whether trash has been transferred.
Guide. Budgeting & Accounting
Cumulative
1-1. Which key components make up the bookkeeping process? (1-2&4) - answer Is the
process of recording and classifying transactions
(a financial event that is shown within a financial statement/report)
1-1a. What is budgeting (1-2)? - answerIt is an ongoing process coordinating resources
and expenditures. It is comprised of:
· Analysis of the past
· Benchmarking (reviewing performance metrics)
· Future Projections
1-1b. What does a budget reflect (1-2)? - answerA business' priorities and the resources
needed to accomplish those priorities.
1-1c. How do property and facility managers use periodic financial reports (1-3)? -
answerThey use them to make budgets and make business decisions to best balance
the needs of the occupants at the property and market forces with the goal of enhancing
the property value.
1-2. Describe the role(s) filled by an accountant during the holding period. (1-3) -
answer· Support managers by processing, controlling and reporting accounting data.
· Deliver accurate, meaningful and timely financial reports
(They support the PM, they do NOT to explain a variance.)
1-1d. What are transactions (1-3)? - answerA financial event that is recognized in a
financial statement or report.
They must be sorted into orderly, systematic, and logical classifications to properly
convey financial information.
1-2a. Describe the role(s) filled by a property manager during the holding period. (1-3) -
answer· Meeting the owner's goals and objectives, which usually include protecting and
growing the cash flow.
· Properly caring for the physical asset.
Both roles result in enhancing the value of the property, thus proving profit potential
upon sale.
1-3. What are the primary functions associated with accounting? (1-4) - answerIt is a
uniform and consistent system where financial data is:
,· Interpreted
· Summarized
· Communicated
1-4. Specify functions incorporated in the budgeting process. (1-4) - answerThe process
of planning and coordinating resources (cash/deposits) and expenditures (money spent)
1-5. Describe the accounting cycle types most common to the commercial real estate
management business. (1-5) - answer· Capital (property acquisition & financing)
· Conversion (non-monetary assets)
· Expenditure (Exchange for goods or services Ex. Utility services)
· Revenue (Exchange for cash Ex. Commercial Office Space)
1-5a. Define Revenue Cycle? (1-5) - answerIt includes the functions required to
exchange products or services with customers for cash.
1. Signing: A tenant signs a lease for office space.
2. Administering: Lease administered, includes assessing charges for use of space
3. Collecting: Rent & Services Revenue is collected.
4. Recording: Collected Revenue is recorded.
5. Reconciling: Summary of accounts confirmed and reconciled to make sure they
balance.
1-5b. Define Expenditure Cycle (1-6) - answerIncludes the functions that:
· Acquire property, goods, services, and labor
· Pay for them
· Classify, summarize, and report----what is acquired and what is paid for?
Ex. Labor-internal & external, Supplies, Utility Services etc.
1-5b1. Explain the 4 Steps in the Expenditure Cycle for the Acquisition of Goods and
Services. (1-7) - answerGoods and Services are:
1. Requested from vendor via PO or monthly contract.
2. Received and documented by receiving document or service record.
3. Vendor invoice is coded, approved, & processed for payment.
4. Check issued to vendor to pay invoice.
1-5c. What is an account (1-6)? - answerAn individual record of information and
transactions related to each asset or liability and each aspect of owner's equity.
1-6. What are the three summary account types? (1-9) - answer· Assets (everything a
company owns)
Ex. Cash, building & land, inventory supplies, office furniture
· Liabilities (funds borrowed—like mortgage)
Ex. Accounts payable, debts owed for equip & furniture, mortgages
· Owner's Equities (owner's money)
Everything remaining after liability is subtracted by the sum of all assets.
,1-6a. What is the basic accounting equation? (1-9) - answerOwner's Equities= Assets -
Liabilities
OR
Assets= Liabilities + Owner's Equity
OR
Assets= Liabilities + (Capital + Revenue-Expenses)
1-6b. What is true about both sides of the accounting equation? (1-9) - answerThey are
equal. Always.
1-7. How are debits and credits applied to the fundamental accounting equation? (1-11-
12) - answerThey are the backbone of accounting and are considered double entry
accounting.
1-7. How are debits and credits applied to the fundamental accounting equation? (1-11-
12) [In Terms of Owner's Equity] - answerCheat Sheet:
Increase revenue (asset)---credit
Increase expense (liability)---debit
For Assets & Owner: Opposite of what you'd think ***
For Liability:
Increase a liability (credit it) ***
Decrease a liability (debit it)
Remember: Double Entry Accounting
1-8. Explain the relationship between the balance sheet and summary accounts. (1-15)
- answerIt is a statement of the financial position of the business entity at a point in time.
For each type of account--assets, liabilities, or owner's equity--we can either increase or
decrease the balance.
(At C&W it's our operating statement)
1-8a. What are the three sets of books that companies typically keep (1-17)? TEST -
answerGeneral Journal
All transactions recorded in chronological order as they occur
Cash Journal/Cash Receipts
· Cash journal is receipts for each business day
· Cash receipts includes all transactions of the business (more detailed)
General Ledger
Detailed transactions by ledger of account.
1-8b. What is a trial balance? (1-18) - answerA component of the GL—which is a list
showing the title and balance of each account on the GL as of a specific date. It can be
used to check equality of debit and credit balances.
, 1-9. What are the generally accepted accounting principles (GAAP)? (1-19) - answer·
Common set of accounting principles, standards, and procedures
· Codified by the Financial Accounting Standards Board (FASB) (not international)
1-10. What are International Financial Reporting Standards (IFRS)? (1-19) - answer·
Established and maintained by International Accounting Standards Board.
· Used by many multinational companies in the US & Canada
1-11. What are internal reporting needs common to the real property industry? (1-20) -
answerNumerous activities must be monitored and reported to properly manage real
property such as:
· Tenant collections
· Vendor Payments
· Monthly Operating Results (income and expenses against the budget)
1-11a. What are the three basic external reports or standard financial statements that
businesses use? (1-20) TEST - answer· Income statement
· Balance Sheet
· Cash Flow Statement
1-12. Describe what an income statement is used for. (1-20) - answerIt shows revenues
earned and expenses incurred, resulting in net income and net loss for that period.
1-12a. Describe what a balance sheet is used for (1-20) - answerIt reflects the balances
of each asset, liability, and owner's equity account a point in time.
1-12b. What are accounts receivable? (1-20) - answerMonies that have been earned,
but not yet received by the company or business. They are recorded as assets on the
balance sheet.
1-12c. What are accounts payable? (1-20) - answerDebts owed to other businesses. On
the balance sheet, they are recorded as liabilities.
1-12d. Describe a cashflow statement (1-21) - answerDescribes the changes in cash
from one period to the next.
1-13. What are common accounting methods used for recording financial transactions?
(1-21) TEST - answerCash method:
Income and expenses are recorded only when they are received or paid out---Most
Basic.
Accrual basis accounting:
Records revenues and expenditures related to the period for which they are applicable,
whether trash has been transferred.
