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

Overbilling occurs when a contractor bills an owner for a greater percentage of work completion than has actually been accomplished, creating a billing in excess of costs.

Question 2

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

Accepted Answer

Current assets minus current liabilities

Answer

Working capital is calculated as current assets minus current liabilities and measures the contractor's short-term financial health and ability to meet obligations.

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 of values allocates the total contract price across specific work items, forming the basis for calculating progress payments as each item is completed.

Question 4

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

Accepted Answer

Proportionally as work progresses based on project completion percentage

Answer

Under the percentage-of-completion method, revenue is recognized in proportion to the project's completion percentage, matching income with the corresponding period's work.

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

A payment received before the work is performed is recorded as a liability (deferred revenue) because the contractor still owes the client the corresponding work.

NASCLA - National Association of State Contractors Licensing Agencies Practice Test

NASCLA - National Association of State Contractors Licensing Agencies Practice Test

NASCLA Financial Management and Accounting 2