Complete Construction Accounting Terms

Canned Reports

Canned reports are pre-built report templates rather than reports built for a particular situation. These kinds of reports are often used in accounting, but while they are quicker and easier to use, they don’t provide the same level of detail. Many companies use both canned reports and ad hoc reports.

Cash Flow

Cash flow is an accounting term that refers to money that flows into and out of your company. In the construction industry, cash flow is significant because contractors usually have a lot of upfront costs. Materials and labor will have to be paid for before customers make payments, so you always need to be aware of your cash flow.

Certified Payroll

If you are working on certain federally funded construction projects in the USA, you must submit certified payroll reports every week. This is required to ensure that all employers who work on these projects pay at least the minimum wage at the time of the report. Reports are submitted on a form called a WH-347.

Committed Costs

Committed costs are costs that have already been invested in a project and cannot be recovered unless the project is completed as agreed. These might be for materials that have already been purchased or in the form of a completion bond or guarantee. The only way to recoup these kinds of costs on a project is to deliver the work as per the contract.

DBAs

Sometimes, companies in the construction world operate under a name that is not their registered corporate name or their natural name in the case of a sole proprietor. This is known as a DBA or “Doing Business As.” Sole proprietors, partnerships and corporations can all register a DBA.

Equipment Expenses

When you take on any construction project, you will need tools and equipment to get the job done. Sometimes, that equipment will be rented, and sometimes you will purchase equipment or use what you already own. Other equipment costs like fuel, parts and repairs and transporting equipment to site also need to be factored into your equipment expenses calculations for a project.

Holding companies

Holding companies are parent companies in a group of companies that only exist to own the other companies in the group. These companies don’t do any work or produce any products of their own. While they aren’t involved in the day-to-day running of the businesses they own, they often oversee management, financial and legal decisions.

Individual companies

Individual companies are companies that are not incorporated. They are registered to an individual on their social security number. Often, freelancers, independent contractors and similar operate as individual companies, and they are the simplest type of business to set up.

Job Costing

Job costing is the process where you compare the actual costs of a construction project with estimated and budgeted costs. Usually, this involves capturing costs during the project and a final cost accounting at the end of the job. Job costing tells construction companies if they made a profit or a loss on a project and how much.

Joint ventures

A joint venture is a legal agreement between two companies to take on and complete a particular project. Although both remain separate companies, for that specific project, they pool their resources, and both contribute expertise. Both companies in the joint venture also share the project’s expenses, profits, and losses.

Mitigating Risk

Every construction project comes with inherent risks to safety, profitability and profitability. Project teams conduct risk assessments to identify those risks and then create plans and processes to prevent them from happening. This is called risk mitigation or mitigating risk.

Multi-Company Considerations

Often, in the construction industry, companies might have several separate companies that all form part of the same group. These companies usually specialize in different things. So while one might be a general contractor, another company in the same group might be a concrete supplier. This often happens when companies are acquired as going concerns.

Progress Billing

Progress billing is the monthly invoice that construction companies send to their clients for their completed work in that month. Contractors calculate the work completed based on reports from the site, and the billing may be calculated in percentages or units completed based on line items. There is usually a fixed deadline to submit progress billing to the client or their main contractor.

Surety Bonds

Surety bonds are a legal agreement between the contractor on a project and a third-party insurer. The insurer guarantees that the contractor will fulfill the terms of the contract, and if they don’t, the insurer will pay the client as per the terms of the guarantee. This kind of surety bond is often required for large government and infrastructure projects.

WIP Schedules

WIP schedules, or Work In Progress Schedules, are an accounting tool that is used in the construction industry. They are usually used to compare progress and expenditure. This helps construction companies to ensure that their projects are profitable during their life cycle.