Under the percentage-of-completion method, the estimated profits should be distributed evenly throughout the project based on the expected cost of the project. Estimated revenues, expenses and profits are calculated based on the percentage of the project that has been completed. The completed contract method recognizes revenue and expense at the completion of the project.
Liabilities
ACCUMULATED DEPRECIATION: Losses in the value of fixed assets to date are recorded as accumulated depreciation. The calculated depreciation of the fixed asset must never exceed the purchase price of the asset. Net fixed assets are also known as the book value of all fixed assets or the value of fixed assets in the accounting books.
TOTAL ASSETS: Total assets represent the total value of current, fixed and other assets. Retention that is withheld from supplier or subcontractor payments for projects for which retention release requirements have not been met is recorded in the accounts payable-retention category. Monthly invoices from suppliers and subcontractors, less retention and retention on projects where retention release requirements have been met, are recorded in the accounts payable-trade category.
In these situations, the estimated profits must be divided equally over the entire project, based on the expected cost of the project. Invoicing in excess of costs and profits may be the result of cost savings on the work completed or due to the profit not being evenly distributed over the items listed on the value schedule.
Owner’s Equity
In the balance sheet in Figure 2-2, accrued liabilities are broken down into accrued liabilities, accrued taxes and accrued holidays. A capital lease includes any non-cancelable lease that meets at least one of the following conditions: (1) the lease extends for 75% or more of the useful life of the equipment or property, (2) ownership transfers at the end of the lease. , (3) ownership is likely to be transferred at the end of the lease through a purchase option at a deeply discounted price, or (4) the present value of the rents at market interest rates exceeds 90% of the fair market value. equipment or property. WARRANTY RESERVES: Warranty reserves are funds intended to cover the foreseeable costs of warranty work.
When a company has a foreseeable expense related to providing warranty work to a completed construction project, the foreseeable expense must be included as a liability on the balance sheet. Many home builders should be able to predict their expected warranty costs based on past warranty experience. OTHER CURRENT LIABILITIES: Other current liabilities include all other current liabilities not documented elsewhere.
LONG-TERM LIABILITIES: Long-term liabilities include all debts that are not expected to be repaid within a year.
T HE I NCOME S TATEMENT
The income statement includes the following items: revenue, construction costs, equipment costs, general expenses, other income and expenses, and income tax. The income statement reports the value of each of the accounts in the income statement portion of the chart of accounts. Like the balance sheet, multiple accounts on the income statement can be combined and unnecessary accounts left out.
Revenues
Construction Costs
The material cost type does not include labor to install the material. LABOR: The labor cost type includes only the labor that is processed through the construction company's payment system and billed to the construction project. Work that does not go through the company's payment system, including temporary labor services, would be considered a type of subcontracting expense.
SUBCONTRACTOR: The subcontractor cost type includes work performed by subcontractors for a construction project. EQUIPMENT: The equipment cost type includes equipment costs charged to the construction project. When equipment is charged directly to the construction expense section of the income statement, it should be categorized as another type of expense, or the company should split the equipment expense type into leased equipment and owned equipment.
When this is done, the equipment charged directly to the construction cost section of the income statement is categorized as a type of equipment leased cost, while charges originating from the equipment cost section of the income statement are categorized as an equipment. own cost type. When a company does not use the equipment portion of the income statement, all equipment costs are charged directly to the jobs as an equipment cost type and there is no need to break down the equipment category.
Equipment Costs
During the months of January, February, and March, monthly costs would be recorded in the equipment cost portion of the income statement, while no costs would be allocated to jobs. At the end of March, the equipment cost portion of the income statement would have a balance of $9,600 in unallocated costs. During April, $12,000 would be charged to the equipment cost portion of the income statement, and $6,400 of these costs would be allocated to Job 101.
This would continue through October, where the equipment cost portion of the month-end income statement would be overallocated by $7,900. Equipment rented or leased for a particular job can be billed directly to the job as an equipment leased cost type instead of being processed through the equipment cost section of the income statement and subsequently allocated. Insurance includes insurance to protect against loss or damage to the equipment as well as insurance to cover damage caused by the use of the equipment.
Material costs charged to jobs offset the cost categories in the equipment expense section of the income statement in the same way that depreciation offsets fixed assets on the balance sheet. EMPLOYEES WITH EQUIPMENT COSTS: The equipment costs charged to employees include all expense reimbursements by employees for the personal use of company vehicles.
Overhead
Other Income and Expenses
Income Tax
First, the sum of the asset accounts on the balance sheet must equal the sum of the liabilities and equity accounts on the balance sheet. Second, the profit for the period reported on the income statement must equal the total revenue for the period. Third, the profit for each period must equal the change in shareholders' equity for that same period.
For a company using the chart of accounts in Figure 2-1, the change in equity will occur in accounts 410 through 430. Changes in equity that occur throughout a period are usually recorded in the current period's net income category and are then transferred to another equity category at the end of the period.
Figure 2-5 shows a graphical representation of the general ledger breakdown of project costs. The job cost codes are often based on the Building Specification Institute's MasterFormat or Uniformat. A complete cost code, consisting of the job number, phase code, cost code, and cost type, is used to describe each account in the job cost book.
Delimiters other than dots, such as dashes, can be used in the task cost code. The job cost coding system should match the way the company buys out a construction project and tracks the cost of the project. For the postal cost ledger to be useful, budget must be recorded for each cost code.
Two key relationships must be maintained between the general ledger and the postage ledger. For the company using the chart of accounts in Figure 2-1, the amount in account 500 Revenue must equal the total revenue recorded on the postage ledger for the period.
T HE E QUIPMENT L EDGER
First, the total income in the labor cost book must equal the income from the core business—net of interest received and other income—in the income statement for a given period of time. Second, the total costs—excluding approved costs that were not recognized as expenses—in the job cost ledger must equal the construction costs in the income statements for a given time period. The total amount in each of the five subcategories—labor, material, equipment, subcontract, and other—in the labor cost ledger must equal the construction cost in the general ledger in the related account for any given period.
For the company using the chart of accounts in Figure 2-1, the amount in accounts 610 Materials, 620 Labor, 630 Subcontract, 640 Equipment, and 650 Other should equal the costs recorded in the job cost book for the period. . It is important to note that the costs in the job cost book span many months or years; therefore, the cost comparison between the job cost book and the general ledger should include only the costs recorded during a given month, quarter, or year. First, the total costs allocated to jobs in the equipment ledger must equal the accounts against equipment in the income statement for a given period.
For the company using the chart of accounts in Figure 2-1, the sum of the costs allocated to jobs and employees on the inventory ledger must equal the amount in accounts 798 Equipment costs charged to employees and 799 Equipment costs charged to jobs for the year. Second, the costs on the equipment account must equal the sum of the equipment costs on the income statement—excluding contra accounts—for a particular period.
C ONCLUSION
Additionally, 710 Rent and Lease Payments from the income statement should equal the total of all the costs in the rent and lease payment category for all the equipment in the equipment ledger for a specific period. 730 Repairs and Maintenance; 740 Fuel and Lubrication; 750 Taxes, Licenses and Insurance; 798 Equipment charges charged to employees; and 799 equipment costs charged to work. Like the job cost ledger, the general ledger spans several months or years; therefore, the cost comparison between the equipment ledger and the general ledger should include only the costs recorded during a specific month or year.
P ROBLEMS
