Chapters 1-7 Book Review Flashcards
AI pulled info from chapters 1-7 in the book
What is the definition of construction accounting?
Construction accounting is the systematic process of recording, classifying, and interpreting financial transactions specific to the construction industry.
Why is effective construction accounting important?
It determines the financial health of the company and the success of each project, influencing pricing, budget management, and future planning.
What is project-specific accounting?
It involves allocating costs to individual projects rather than a general ledger.
How do long-term contracts affect construction accounting?
They make revenue recognition and cost allocation complex due to the duration of construction projects.
What is a key characteristic of cash flow in construction?
Payments are typically made in stages based on contract milestones.
What are the components of a balance sheet?
- Assets
- Liabilities
- Owner’s Equity
What are current assets?
Assets expected to be used or converted into cash within one year.
What are non-current assets?
Assets that are used for longer periods, such as equipment, land, and buildings.
Define current liabilities.
Obligations due within a year, such as accounts payable and short-term loans.
What is the formula for Owner’s Equity?
Owner’s Equity = Assets - Liabilities
What does the income statement represent?
It shows the total income from construction contracts and expenses, indicating profitability.
What is Cost of Goods Sold (COGS)?
Direct costs incurred in the process of completing the project.
What is the formula for Gross Profit?
Gross Profit = Revenue - COGS
What does the cash flow statement show?
The actual cash inflows and outflows during a period.
What are direct costs in construction?
- Direct Materials
- Direct Labor
- Direct Equipment
What are indirect costs?
Overhead costs that support overall operations but aren’t tied directly to any single project.
What are fixed costs?
Costs that remain constant regardless of the level of production or activity.
What are variable costs?
Costs that change in direct proportion to the level of activity.
What is a Job Cost Sheet?
A detailed record of costs assigned to a particular job.
What is the formula for Total Job Cost?
Total Job Cost = Direct Labor + Direct Materials + Direct Equipment + Allocated Overhead
What is Work-in-Progress (WIP)?
The balance of costs incurred on a project up to a certain point.
What is the WIP formula?
WIP = Total Costs Incurred - Total Billings to Date
What is the WIP method used for?
It’s crucial for long-term contracts where revenue is recognized as the project progresses.
What is the Percentage of Completion formula?
Percentage of Completion = (Cost Incurred to Date) / (Total Estimated Costs)
