Construction Cost Principles & Accounting Flashcards
7 cards from real CCA practice questions. Tap to flip, then mark Knew It or Still Learning — missed cards come back until you master them.
Read the first 7 Construction Cost Principles & Accounting flashcards as text
Under the percentage-of-completion method, how is revenue recognized on a long-term construction contract?
Answer: In proportion to the costs incurred relative to total estimated costs
The percentage-of-completion method recognizes revenue based on the ratio of costs incurred to date versus total estimated contract costs.
A construction company overbills a client $200,000 relative to actual work completed. This amount is recorded as:
Answer: Overbillings (billings in excess of costs)
Billings that exceed the revenue earned to date are classified as overbillings, a current liability representing the obligation to perform future work.
Which cost classification best describes the wages of a site superintendent who oversees multiple projects simultaneously?
Answer: Indirect labor
Costs that cannot be traced directly to a single project, such as a multi-project superintendent, are classified as indirect labor.
A contractor's estimate-at-completion (EAC) exceeds the original contract price. Under GAAP, the contractor must:
Answer: Recognize the full anticipated loss immediately in the current period
GAAP requires immediate recognition of the entire anticipated loss on a loss contract in the period it becomes evident.
Which of the following is an example of a period cost in construction accounting?
Answer: Corporate office rent unrelated to any project
Period costs, such as corporate office rent, are expensed in the period incurred rather than allocated to specific contracts.
When auditing job cost reports, the primary risk associated with the direct-costing method is:
Answer: Omission of fixed overhead from project cost data
Direct costing excludes fixed overhead from job costs, which can lead auditors to underestimate the true total cost of a project.
In a guaranteed maximum price (GMP) contract, cost savings below the GMP are typically:
Answer: Shared between owner and contractor per the contract terms
GMP contracts typically include a shared savings clause whereby cost underruns are split between the owner and contractor according to agreed percentages.