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September 30, 2014

Construction Accounting - All About the Basics

 

United Solutions’ team members recently attended the Sage sponsored, CFMA “Basics of Construction Accounting” seminar, hosted at McGladrey’s Charlestown, MA office.   Instructors, Joe Burkett, CCIFP, the CFO of Cafco Construction Management and Joseph Mahoney, Jr., CPA, a partner at McGladrey provided some very useful information.

The course, which is part of the CFMA’s Education & Development Live Group Seminar Series, examines the types of contracts used, the contract life cycle, industry policy and practices, construction terminology, job costing and how the construction industry recognizes revenue and work in process (WIP).

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One of the Biggest Problems Recognized in the Construction Industry is Revenue and Cost Recognition.

Many construction companies use the accounting method, percentage of completion, which measures the costs incurred to-date against the costs-to-completion, for each contract within their portfolio. Accounting for these costs can be difficult and it takes a proficient construction project manager to have accurate numbers for the costs of the project and the cost to complete the project. It is integral that the accountant responsible for the project has a good understanding of these costs from the project manager, the one person who has the best insight and knowledge as to how the project is progressing.

 

Projects Crossing Over Two Fiscal Years Can Lead to Inaccuracies.

On the accounting construction level, if a project crosses over two fiscal years - the percent complete, the BIEC (Billings in Excess of Costs) and the CIEB (Costs in Excess of Billings) can skew a company’s earnings and show an inaccurate net income if not reported accurately. For example, if the budget costs of a project at completion are higher than projected, within two fiscal periods, a company could inaccurately recognize too much revenue the first year and too little revenue (or a loss) the second year.

 

Two Industry Minds Share Different Perspectives.

It was great to have two instructors with two different backgrounds teaching this course. Cafco's, Joe Burkett, conveyed the perspective of the financial accountant that reports to the owners/shareholders and the importance of getting costs accurate, while McGladrey's, Joseph Mahoney, used the instruction to alert students to what auditors look for in financials that would be a red flag for further audit investigation.

“The Basics” Workshop received high scores from the attendees and was well attended by both large and small construction companies in Massachusetts.

 

Learn more about construction financial accounting software and why you need the right solution to better manage your business.

 

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