NASCLA Financial Management and Accounting 2

Question 1

What is 'overbilling' in construction accounting?

Accepted Answer

Billing the owner for more work than has actually been completed

Answer

Charging clients for premium materials

Answer

Billing for more employees than are on the job

Answer

Charging above-market rates for specialty work

Question 2

Which of the following best describes a contractor's 'working capital'?

Accepted Answer

Current assets minus current liabilities

Answer

Total long-term assets of the business

Answer

Equipment and vehicle value

Answer

Annual revenue minus annual expenses

Question 3

What is the purpose of a contractor's 'schedule of values' submitted with a pay application?

Accepted Answer

A breakdown of the contract amount allocated to specific work items for progress billing purposes

Answer

A schedule showing employee wage rates

Answer

A list of material prices from suppliers

Answer

A schedule of subcontractor payment dates

Question 4

Under the percentage-of-completion method, when is revenue recognized?

Accepted Answer

Proportionally as work progresses based on project completion percentage

Answer

Only when the project is 100% complete

Answer

At the beginning of the project when the contract is signed

Answer

When the final payment is received

Question 5

A contractor receives a $50,000 payment before starting work. How is this recorded on the balance sheet?

Accepted Answer

As a liability (deferred revenue or billings in excess)

Answer

As revenue earned

Answer

As accounts receivable

Answer

As a long-term asset

Question 6

What does a negative cash flow mean for a construction company?

Accepted Answer

The company is spending more cash than it is receiving, which can cause financial difficulty

Answer

The company is highly profitable

Answer

The company has excessive receivables

Answer

The company has too many long-term assets