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Construction Accounting Essentials Guide

This document discusses key concepts in construction accounting and financial management. It defines committed costs as costs a company is obligated to pay, even if not yet invoiced. It also defines estimated cost at completion as the best estimate of final project cost, including committed, invoiced, and estimated remaining costs. Earned profit is calculated as estimated total profit times percent of project completed. Costs and profits in excess of billings occurs when a project is underbilled relative to the work done. Billings in excess of costs and profits occurs when a project is overbilled. The document stresses the importance of internal controls and selecting a reliable construction accounting system.

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12 views2 pages

Construction Accounting Essentials Guide

This document discusses key concepts in construction accounting and financial management. It defines committed costs as costs a company is obligated to pay, even if not yet invoiced. It also defines estimated cost at completion as the best estimate of final project cost, including committed, invoiced, and estimated remaining costs. Earned profit is calculated as estimated total profit times percent of project completed. Costs and profits in excess of billings occurs when a project is underbilled relative to the work done. Billings in excess of costs and profits occurs when a project is overbilled. The document stresses the importance of internal controls and selecting a reliable construction accounting system.

Uploaded by

tpitts25
Copyright
© All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd

1

Construction Accounting and


Financial Management
Chapter 4
More Construction Accounting
Committed Costs
Costs that the company has committed to
pay
Costs are known, even if a bill has not been
received for these costs
Example:
Subcontracts
Purchase orders with costs
Estimated Cost At Completion
Best estimate of final cost
ECAC = Committed costs +
Non-committed costs invoiced +
Cost to complete
Cost to complete is the non-committed costs
that we expect to incur to complete the
project
Earned Profit
Earned profit = Estimated profit on project x
Percent complete
Costs and Profits in Excess of Billings
Based upon the assumption that the profit is
uniformly spread over the project:
The project is under billed
We have billed for less profit that we have earned
We may pay taxes on profit even though it has not
been paid
Is an asset to the company
Costs and Profits in Excess of Billings
Earned profit
+ Actual costs to date
Total billed
Cost and profits in excess of billings
2
Billings in Excess of Costs and Profits
Based upon the assumption that the profit is
uniformly spread over the project:
The project is over billed
We have billed for more profit that we have
earned
Taxes may be deferred on profit even though it
has been paid
Is a liability to the company
Billings in Excess of Costs and Profits
Total Billed
Earned profit
Actual costs to date
Billings in excess of costs and profit
Internal Controls
Separation of duties
Proper paper trail
Review by owner or manager
Track all assets
Keep accounting current
Limit access
Selecting a Construction Accounting
Systems
Reliability
Cost
Training and
Support
Ease of use
System protection
Integration
Backup and
recover procedures
Customization

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