This course addresses every aspect of accounting for a construction business. The intent is to not only explain accounting concepts, but also provide examples and show how an accounting system can be constructed and operated. The course pays particular attention to unique aspects of construction accounting that are not encountered in other industries, including the job cost ledger, change orders, back charges, percentage of completion calculations, and the treatment of anticipated losses on contracts.
Upon successful completion of this course, participants will be able to:
- Recognize the nature of the construction contractor, noting the types of bonds that a contractor may be required to post.
- Identify different types of construction contracts, noting the different types of clauses that may be added to a construction contract.
- Note the various causes of contract claims.
- Note the types of financial difficulties to which the construction industry is subjected.
- Identify the different types of ledgers used by a construction company.
- Note the components of a work breakdown structure.
- Recognize the types of accounts most likely to be designated as control accounts by a contractor.
- Recognize the different methods used to calculate the percentage of completion.
- Identify the situations in which the completed contract method should be used.
- Specify the circumstances under which the recovery of funds from a change order is probable.
- Note the proper accounting for pre-contract costs.
- Note the various journal and general entries for construction transactions, including the normal account balances for the various account types.
- Recognize when the straight-line rent concept should be applied.
- Recognize the components of financial statements for construction companies, noting the uses to which the accounting equation is put.
- Identify the linkage between the balance sheet and the income statement.
- Identify the impact of a long operating cycle.
- Recognize the components of fixed asset accounting for construction companies, citing the circumstances under which the useful life concept is employed.
- Note the significance of the mid-month convention.
- Identify the depreciation calculations for all depreciation methods.
- Recognize the accounting for the disposition of a fixed asset.
- Note the methods available for giving meaning to a supplier identification number.
- Recognize the purpose of the different copies of the Form 1099-MISC.
- Note the purpose of the more important boxes listed on the Form 1099-MISC.
- Recognize the components of debt accounting, noting reasons for loan balance differences in the records of the lender and borrower.
- Cite the rule used for determining the amount of a loss contingency accrual.
- Cite examples of contingencies, noting the proper disclosure for the different types of contingent losses.
- Identify the various types of leases, noting their characteristics, measurements, use, and accounting.
- Recognize the lease rules related to short-term lease arrangements.
- Recognize the accounting requirements for payroll, noting the usage of Form W-4 and the impact of withholding allowances.
- Identify the calculation used for the hourly rate plan.
- Note how the wage bracket method is used.
- Recognize the payment schedules for the different types of tax deposits.
- Identify the tax calculation for the FUTA tax.
- Recognize the accounting requirements for investments in joint ventures, noting how the equity method is calculated.
- Identify IRS tax requirements specific to the construction industry, citing types and examples of costs and accrual methods.
- Note the IRS designation for a multi-year contract.
- Recognize the circumstances under which the IRS allows the cash method to be used.
- Define the circumstances under which the IRS allows a business to be classified as a small contractor.
- Identify the situations in which a change log can be most profitably used.
- Recognize the controls that apply to fixed fee and cost plus contracts.
- Cite the components of earned value management.
- Note the calculation components of the cost performance index.
- Note the advantages and disadvantages of the various types of organizational structures, as well as the requirements for the formation of each one.
Table of Contents
Chapter 1 – Overview of the Construction Industry
Nature of the Construction Contractor
The Bidding and Construction Process
Types of Construction Contracts
Fixed Fee Contract
Cost Plus Contract
Construction Contract Modifiers
Construction Industry Failure Issues
Chapter 1 – Review Questions
Chapter 2 – The Construction Accounting System
Nature of a Construction Accounting System
The Chart of Accounts
The General Ledger
The Work Breakdown Structure
The Job Cost Ledger
Job Cost Ledger Posting
The Equipment Ledger
Chapter 2 – Review Questions
Chapter 3 – Construction-Specific Accounting
Accounting Standard-Setting Organizations
Types of Accounting Methodologies
Cash Method of Accounting
Accrual Method of Accounting
Percentage of Completion Method
Completed Contract Method
Summary of Accounting Methodologies
Unpriced Change Orders
Contract Back Charges
Costs Assigned to Jobs
Equipment Cost Allocation
Chapter 3 – Review Questions
Chapter 4 – Construction Transactions
Double Entry Accounting
Office Rent Expense
Other General Expenses
Supplier Invoice Payments
Client Cash Receipts
Sale of Stock
Entries Related to the Percentage of Completion
Anticipated Losses on Contracts
Job Costing Entries
Invoice Charged to Job
Labor Charged to a Job
Inventory Charged to a Job
Equipment Charged to a Job
Chapter 4 – Review Questions
Chapter 5 – Construction Financial Statements
The Balance Sheet
The Income Statement
The Statement of Cash Flows
Financial Statement Disclosures
Chapter 5 – Review Questions
Chapter 6 – Fixed Asset Accounting
What are Fixed Assets?
Fixed Asset Classifications
Accounting for Fixed Assets
The Capitalization Limit
The Base Unit
The Initial Measurement of a Fixed Asset
The Purpose of Depreciation
Sum-of-the-Years’ Digits Method
Double-Declining Balance Method
Units of Activity Method
The Depreciation of Land
The Depreciation of Land Improvements
Depreciation Accounting Entries
Abandoned and Idle Assets
Asset Disposal Accounting
Chapter 6 – Review Questions
Chapter 7 – Payables Accounting
Accounting for Accounts Payable
Early Payment Discounts
The Vendor Master File
Vendor Master File Usage
Supplier Naming Conventions
The Payables Filing System
The Form 1099-MISC
Treatment of Incorrect Filings
The Form W-9
Chapter 7 – Review Questions
Chapter 8 – Debt Accounting
Basic Debt Accounting
The Amortization Schedule
Reconciling the Debt Account
Participating Mortgage Loans
Chapter 8 – Review Questions
Chapter 9 – Contingencies
Chapter 9 – Review Questions
Chapter 10 – Lease Accounting
The Nature of a Lease
Initial Lease Measurement
Chapter 10 – Review Questions
Chapter 11 – Payroll Accounting
Employee Time Tracking
Gross Pay Calculations
Hourly Rate Plan
Types of Payroll Taxes
Social Security Tax
Income Tax Withholdings
Benefits and Other Deductions
Remitting Payroll Taxes
Types of Tax Deposit Schedules
Monthly Deposit Schedule
Semiweekly Deposit Schedule
Federal Unemployment Deposit Schedule
The Form 941 Quarterly Federal Tax Return
State Tax Remittances
Payments to Employees
The Payroll Register
Payroll Journal Entries
Types of Payroll Journal Entries
Primary Payroll Journal Entry
Manual Paycheck Entry
Accrued Vacation Pay
Chapter 11 – Review Questions
Chapter 12 – Investments in Construction Joint Ventures
The Equity Method
The Cost Method
Sales to a Joint Venture
Chapter 12 – Review Questions
Chapter 13 – Construction Tax Issues
The Accounting Method to Use for Tax Reporting
Application of the Cash Method
Application of the Accrual Method
Types of Costs
Types of Accrual Methods
Percentage of Completion Method
Exempt Percentage of Completion Method
Completed Contract Method
Chapter 13 – Review Questions
Chapter 14 – Construction Accounting Controls
Segregation of Duties
Access to Data
Controls for Estimates and Bids
Controls for Cost Plus Pricing Arrangements
Controls for Fixed Fee Pricing Arrangements
Job Closure Controls
Percentage of Completion Controls
Change Order Controls
General and Administrative Controls
Chapter 14 – Review Questions
Chapter 15 – Job Analysis
Projected Cost and Variance Analysis
Adjusting for the Timing of Billings
Earned Value Management
Schedule Performance Index
Cost Performance Index
Chapter 15 – Review Questions
Chapter 16 – Business Structures
Limited Liability Company
Chapter 16 – Review Questions
Review Question Answers and Rationales
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