Business and Financial Management Flashcards

What is the purpose of a contractor's business license separate from a trade certificate?

Answer: To authorize the business entity to legally operate and conduct commerce in a jurisdiction

A business license authorizes a company to operate in a city or county, while a contractor certificate certifies the person's trade competency.

What does 'job costing' mean for a contractor?

Answer: Tracking all labor, material, and overhead expenses for each individual project

Job costing assigns actual costs (labor, materials, equipment, overhead) to specific projects to measure profitability and improve future estimates.

Which financial statement shows a contractor's revenue and expenses over a period of time?

Answer: Income statement (profit and loss statement)

The income statement reports revenues and expenses over a specific period, revealing the net profit or loss for that timeframe.

What is 'overhead' in contractor financial management?

Answer: Indirect business costs not tied to a specific project, such as office rent and insurance

Overhead includes general business expenses like rent, utilities, vehicle costs, and office staff that cannot be directly charged to a single project.

What is the purpose of a 'Schedule of Values' on a construction project?

Answer: To break down the contract price into line items for billing and payment tracking purposes

A Schedule of Values allocates the total contract price to work categories, allowing owners to verify and approve progress payment requests.

What does the term 'retainage' refer to in construction contracts?

Answer: A percentage of each progress payment withheld by the owner until project completion

Retainage (typically 5–10%) is held back from each payment to ensure the contractor completes all work and corrects deficiencies before receiving final payment.