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Budgeting (Shallow Dive)
I was asked recently to write about budgeting and what should go into a project's budget. Great topic! I would like to answer this from the perspective of what's meaning for the work in progress (WIP) report. Start with direct costs and costs necessary to complete the project such as: Material Labor Labor burden Subcontractor costs Equipment rental General direct costs (ex. bonds, insurance specific to the project, etc.) All these costs should show up in your total estimated
Any Questions?
Year end is approaching. Feel free to post some questions. I will do my best to answer quickly. If I don't know the answer, I will do my best to provide some guidance. Thanks! Ara
When and how do you accrue job costs?
Quick lesson! If you've incurred costs on a project but haven't recorded the costs in your accounting system yet because you haven't received the invoice, you should technically accrue the costs. Accruals will function as a placeholder until you receive the invoice. Once you receive the invoice and record it, "reverse" the accrual so you're not doubled up on liabilities and costs. For example, if you are anticipating an invoice of approximately $100,000, you would record the
Due on Demand Clause- Get it outta here!
Homework time! 1) Open a copy of your operating loan or line of credit agreement. 2) Look for "due on demand" in the pay terms. If you see "due on demand" you'll likely see ", if no demand, on MM/DD/YY" follows right after. 3) If your loan states that it's due on demand, it is likely that you will need to present the outstanding balance as a current liability even if it matures over one year from the balance sheet date. This is because the financial institution, at their ow
Contract Assets and Contract Liabilities Part II
So, how do you determine if conditional retainage is included (presented) in contract assets or contract liabilities? (If you have...
Contract Assets and Contract Liabilites
Accounting Standards Codification (ASC) 606- Revenue Recognition, among other things, changed the way we present financial statements....
Another Way to Calculate Revenues Earned
Here's another way to calculate revenues earned using the percentage of completion method. Just thought I'd share. ***DISCLAIMER*** This...
Troubleshooting overbillings that seem off, Part 2
So you've calculated work in progress (WIP) on open jobs but something seems off. You think to yourself, "there's no way I could be overbilled so much on this project, that overbilling can't be right." Your "actual gross profit" percentage (from billings to date and cost to date) is much higher than your estimated gross profit on the project. The difference in gross profit percentages doesn't add up. So, what do you do about it? I recommend the following two options: 1) Check
Troubleshooting overbillings that seem off, Part 1
So you've calculated work in progress (WIP) on open jobs but something seems off. You think to yourself, "there's no way I could be overbilled so much on this project, that overbilling can't be right." Your "actual gross profit" percentage (from billings to date and cost to date) is much higher than your estimated gross profit on the project. The difference in gross profit percentages doesn't add up. So, what do you do about it? I recommend the following two options: 1) Check
High Overbilling Doesn't Make Sense?
You have a high overbilling on a project but it doesn't make sense. First, remember this! Actual Gross Profit* % > Estimated Gross Profit...
Common Underbilling Scenarios: Scenario(s) 4
On to Scenario 4 or the "Going through the punch list” scenario. Keep your subsequent activity nearby for this scenario. In the example...
Common Underbilling Scenarios: Scenario(s) 3
On to Scenario 3 or the "Really? Are you sure?" scenario. This scenario often results in significant changes to total estimated cost. In...
Common Underbilling Scenarios: Scenario(s) 2
In this lesson we'll cover the second common scenario with underbillings, the "nothing to see here folks" scenario (2). Let's get to it!...
Common Underbilling Scenarios: Scenario(s) 1
It's December X3 and you just started a new project. You’ve incurred (and recorded) costs on the project but didn’t get around to billing...
Four common scenarios I see with underbillings
A question that always comes up is "How do I know if I'm calculating work in progress (WIP) correctly?" Unfortunately, we'll never really...
Completed Contracts Method of Revenue Recognition
Two points I want to emphasize with completed contracts method of revenue recognition: Billings to date and cost to date on open projects...
FREE SHIRT! (U.S. ONLY, FOR NOW)
I ordered some shirts with the Percent Complete logo! Who ever comments first below wins one!!! I haven't looked at international...
Illustration of an expected loss on a project
Unfortunately, not all projects make money. You've got delays, the project owner is throwing a fit, the site conditions are unruly, etc....
"Don't fear the overbilling" by Blue Oyster Construction
Yes, overbillings reduce revenue. Yes, overbillings are a liability. BUT, they're not bad once you understand them more. Brief overview...
Unallocated Job Costs
Chances are you have unallocated job costs. Usually it's from repairs and maintenance on equipment or vehicles, fuel, insurance or...
Disclaimer:
The content provided on this website is for educational purposes only. While every effort has been made to ensure the accuracy of the information, the lessons, materials, and resources related to construction accounting are not intended to replace professional advice. I recommend that you consult with a certified accountant or other industry expert before making any financial decisions or implementing accounting practices in your business.
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