Net Operating Revenue
-
I think it helps to remember that all of the financial conventions are just that: conventions. There’s always going to be some arbitrary elements to common practice in accounting. I don’t think there’s any real reason of principle why reimbursables are deducted, it’s just how it’s typically done. That said, there’s some logic to it in that when you think about a firm or an employee’s revenue in general, you probably want to think about it in terms of services the firm or person actually provides (architecture). If an out-of-town project generates high (or low) revenues compared to other similar projects, that’s useful information. Including travel in the revenue comparison, for example, would distort the numbers and the revenue comparison would be effectively useless. You’d have to look at each project’s profitability, which, of course, you could do. Like I said, there’s some arbitrariness to all this stuff. I found a lot of the architecture accounting principles frustrating and non-intuitive when studying for the AREs but I can appreciate the value of knowing what’s considered common practice. For what it’s worth every firm I’ve worked at has deducted reimbursables from revenues and in my own (solo) practice I do the same.
-
AHPP formulates NOR as Fees Billed ( including consultants + markups) + Reimbursable (including markup) - Consultant Fees + All Project Related Expenses ( non-reimbursable +reimbursable) because if you do the math this way you will be left with that markup portions which is your revenue.
So let's say you spent $10 (reimbursable) on a project-related cost, marked it up 10% and billed it to the client as $11. Your NOR is that $1 markup, cause you spent the other $10 on the thing that was required to do the work. It is not in your account anymore, used on the project.
If there were also extra, non-reimbursable expenses, that would also come out of that $1 too, btw.
Hope this makes sense.
Please sign in to leave a comment.
Comments
2 comments