Standard Terms
General
Accounts Company
Accounts company determines a separate business entity, subsidiary, related company or division within a business group or organisation. This can be within the same country or internationally but will always have a separate accounting company set up.
Project
A project refers to the overall body of work for a specific client, typically involving the design, planning, and construction of a building or development. For an architectural firm, a project encompasses everything from the initial concept through to the final completion of the building or development. Projects often have a defined scope, timeline, budget, and set of deliverables.
Example: Designing and overseeing the construction of a new office building for a client.
Workstage
A workstage refers to the distinct phases or stages within a project. These stages are often aligned with recognized frameworks or guidelines, such as the RIBA Plan of Work (Royal Institute of British Architects) in the UK. Each work stage represents a specific phase of the project lifecycle and focuses on a particular set of activities and deliverables.
For example, in architecture, the RIBA Plan of Work divides projects into stages such as Concept Design, Detailed Design, Technical Design, and Construction. Work stages are important for tracking progress and ensuring that each phase is completed before moving on to the next.
Example: Work Stage 2 in RIBA's framework is the "Concept Design" phase, where the basic design of the project is created.
Task
A task is a specific activity or piece of work that needs to be completed within a work stage. Tasks are the most granular level of work in a project and often represent the day-to-day responsibilities of team members. Tasks are typically assigned to individuals or teams and have deadlines to ensure the overall project stays on track.
Tasks can include drafting designs, holding meetings, preparing documents, conducting site visits, or coordinating with engineers and other consultants.
Example: In the "Concept Design" work stage, a task might be to create the initial sketches for the building's façade or to prepare a feasibility study.
Accounting
Chart of Accounts
The chart of accounts (COA) is a structured list of all the nominal codes (or general ledger accounts) that an organization uses to record financial transactions. It serves as a framework for the company’s entire accounting system, providing a complete list of all accounts that are used to track financial activities.
The chart of accounts is typically divided into sections such as:
- Assets (e.g., cash, inventory)
- Liabilities (e.g., loans, accounts payable)
- Equity (e.g., shareholder equity)
- Income/Revenue (e.g., sales, services)
- Expenses (e.g., salaries, utilities)
Each account in the chart of accounts is linked to a nominal code that helps identify its type and purpose. The COA provides an organized view of all the accounts a business uses, and it is a key tool for preparing financial statements like balance sheets and profit & loss accounts.
Example: The chart of accounts may list all asset accounts, such as cash (1000), accounts receivable (1200), and office equipment (1400), as well as liability accounts like loans (2000) and income accounts like sales (4000).
Nominal Codes
Nominal codes, also referred to as general ledger codes or account codes, are specific numerical identifiers used to categorize and record transactions within an accounting system. Each code represents a type of income, expense, asset, liability, or equity. Nominal codes help organize financial data into the correct categories, making it easier to track the financial position of a business.
Example: Nominal code 4000 might represent sales revenue, 5000 might represent office expenses, and 6000 might represent staff wages.
Nominal codes allow for detailed tracking of different financial elements, such as income or expenses, by assigning each transaction to the correct category.
Tax
TAX in Rapport3 refers to a consumption TAX like VAT (Value-Added TAX) in the UK or GST (Goods and Services TAX) in Australia. In the United States, there is no national Value-Added Tax (VAT) or Goods and Services Tax (GST) equivalent. Instead, the US primarily relies on sales tax at the state and local levels.
Resources
Resource
Any person that can be allocated to a project, to ensure effective scheduling and management.
Cost Rate
Is the financial value assigned to a resource and represents the cost incurred for a period of work, typically, hourly or daily.
Charge Rate
A charge rate is the financial value assigned to a resource, representing the amount billed for their work over a specific period, typically hourly or daily. It is usually calculated by adding a profit margin to the resource's cost rate.
Income
Revenue
Definition: Revenue is the total income a company generates from all its business activities, including the sale of products, services, or other income streams such as interest or royalties. It represents the top line in the income statement and encompasses all earnings before expenses are deducted.
Scope: Revenue includes all types of income sources and reflects the overall financial performance of a business.
Fees
Definition: Fees refer specifically to the charges for services rendered, typically agreed upon upfront or as part of a contractual agreement. Fees are often a component of revenue but are more narrowly defined.
Scope: Fees are specific to the price charged for professional services or project-based work, and they may make up only a portion of a company’s total revenue.
Proforma Invoice
A proforma invoice is a preliminary sales invoice sent to a customer before goods or services are delivered. It outlines the details of the transaction, including the products or services, quantities, prices, and terms, but does not serve as a formal request for payment. It is commonly used to provide an estimate or confirm order details before finalising the sale.
Application for Payment
An application for payment is a formal request submitted by a contractor or supplier to a client, detailing the work completed or materials provided during a specific period. It typically includes a breakdown of costs, such as labour, materials, and any agreed-upon fees, and serves as the basis for requesting payment for the work done up to that point in a project. It is often used in construction and project-based industries to track progress and ensure payment aligns with the completion of stages.
Sales Invoice
A sales invoice is an official document issued by a seller to a buyer, detailing the products or services provided, their quantities, prices, and payment terms. It serves as a request for payment, outlining the total amount due, including any applicable taxes or discounts, and provides a record of the transaction for both the seller and the buyer.
Billing
Billing is the overall process of requesting payment for goods or services provided. It encompasses all activities related to creating, sending, and managing invoices, tracking payments, and ensuring that a business is paid for its services or products.
Intercompany Sales Invoice
An intercompany sales invoice is a document used to record the sale of goods or services between different accounts companies. It details the transaction, including the items sold, quantities, prices, and terms, just like a regular sales invoice. However, it is specifically used to manage and track internal transactions between accounts companies, helping to ensure proper financial reporting and accounting within the group.
Outgoings
Staff Expense
A staff expense refers to costs incurred by employees during the course of performing their work duties, which are reimbursable by the company.
Purchase Order
A purchase order (PO) is a formal document issued by a buyer to a seller, outlining the details of goods or services the buyer intends to purchase. It includes specifics like quantities, descriptions, prices, delivery dates, and terms of the order. Once accepted by the seller, it serves as a binding contract between the two parties.
Purchase Invoice
A purchase invoice is a document issued by the seller to the buyer after the goods or services have been provided. It outlines the total amount due for the items or services delivered, referring to the terms agreed upon in the purchase order. The purchase invoice acts as a request for payment.
Intercompany Purchase Invoice
An intercompany purchase invoice is a document used to record the purchase of goods or services between different accounts companies. It details the transaction, including the items purchased, quantities, prices, and terms, similar to a regular purchase invoice. However, it is specifically designed to manage and track internal transactions between subsidiaries, divisions, or related companies, ensuring accurate financial reporting and accounting within the group.
Sub Consultant Fees
A sub consultant is an external specialist or firm hired by a primary consultant to perform specific tasks or services that fall outside the primary consultant's expertise or capacity.
Project Financials
Recoverable Costs
Definition: Recoverable costs are expenses incurred by a business during the course of a project that can be recovered from the client. These costs typically include direct expenses like travel, materials, or subcontractor fees that are directly related to delivering the project.
Context: Recoverable costs are usually outlined in the contract or agreement with the client, specifying which costs will be reimbursed. These costs are paid by the company upfront and then later recovered through client invoicing.
Example: If an architect travels to a site for a project and incurs travel expenses, the company would classify that as a recoverable cost, as they can invoice the client for that amount.
Rechargeable Costs
Definition: Rechargeable costs, also known as billable costs, refer to expenses that are specifically marked to be charged back to the client as part of the project billing process. These may include both direct and indirect costs, such as staff time, resource usage, or other project-related expenses.
Context: Rechargeable costs are usually part of the agreed fee structure, where the client is charged for specific services or resources used during the project. These costs are charged on a per-service or per-usage basis.
Example: If a consultant works on a project for 10 hours, the labour cost for those hours is considered rechargeable, meaning the client is billed for that time according to the agreed-upon rate.
Planning
In Rapport3, planning refers to the manual entry of information regarding resources, expenses, or billing, ensuring that all relevant project details are accurately tracked for effective project management.
Actuals
Actuals refer to the recorded data entered through timesheets, expenses, and purchase invoices, representing the real costs and efforts incurred. These figures are used to compare against the planned data to assess project performance and financial accuracy.
Forecast
A forecast involves calculations that combine both planned and actual data. For example, to estimate the total cost of a project, the system uses actual costs incurred so far and planned costs for the remainder of the project to generate a forecast, helping predict the final outcome.
Variance
A variance refers to the difference between a planned financial amount and the actual amount incurred or earned. Variances can be either favourable (when actual results are better than expected) or unfavourable (when actual results are worse than expected).
Profit/Loss
Profit refers to the financial surplus generated when the project's revenue exceeds the total costs associated with completing it, including labour, expenses, and overhead. A loss occurs when the project's expenses surpass its revenue, indicating that the project is not financially viable.
Special Terms
Accrued Income
Definition: Accrued income refers to revenue that has been earned but not yet invoiced or received by the business. It represents work or services that have been completed, but the client has not yet been billed, and payment is expected in the future.
Example: If a company has completed 40% of a project by month-end but hasn’t yet issued an invoice for that portion of the work, it will record the earned amount as accrued income on the financial statements.
Accounting Treatment: Accrued income is recorded as an asset on the balance sheet because the company expects to receive payment in the future.
Deferred Income
Definition: Deferred income is money received by the business before the related work or services are performed. It represents a liability because the business still owes the client the services or goods that correspond to the payment.
Example: If a client pays £50,000 upfront for a project that will take six months to complete, the business would record this payment as deferred income until the work is completed.
Accounting Treatment: Deferred income is recorded as a liability on the balance sheet because the company owes the client either goods or services for the payment received.
Work In Progress (WIP)
Definition: WIP refers to the value of work that has been performed on a project but has not yet been invoiced or recognized as revenue. It represents the costs incurred and progress made on a project that are still in the process of completion.
Purpose: It is used to track the status of ongoing work and is a key measure of unbilled activity in project-based businesses, helping monitor project progress and profitability.
Revenue Recognition
Definition: Revenue recognition is the process of recording revenue in the financial statements when it is earned, regardless of when payment is received. It follows accounting standards (such as IFRS or GAAP) to ensure that revenue is recorded when the company has fulfilled its obligations, even if the cash hasn't been received yet.
Purpose: It ensures that revenue is recorded in the correct accounting period, reflecting the actual financial performance of the company.
Earned Fees
Definition: Earned fees represent the portion of the agreed-upon fees for a project that have been completed and are considered earned based on the work performed. This is typically based on the percentage of work done or milestones achieved, and it indicates how much of the project’s total fee the company has the right to invoice or recognize as revenue.
Purpose: Earned fees show the revenue the business can recognize as a result of the work performed to date, helping to measure progress and revenue generation in relation to the project.
Key Differences:
- WIP tracks the cost of work done but not yet billed or recognised as revenue.
- Revenue Recognition is the accounting principle that dictates when revenue can be recorded.
- Earned Fees refer to the portion of the project fee that has been earned based on the completion of work, which may lead to revenue recognition.