NASCLA Financial Management and Accounting 3

Question 1

What is the purpose of a 'construction budget' versus a 'project estimate'?

Accepted Answer

An estimate is used for bidding; a budget is used internally to control and track actual project spending

Answer

An estimate is prepared for bidding purposes, while a budget is the approved internal plan against which actual job costs are monitored and controlled throughout construction.

Question 2

Which of the following is a direct job cost in construction accounting?

Accepted Answer

Labor wages paid to workers on a specific project

Answer

Direct job costs are expenses directly attributable to a specific project, such as labor wages, materials, subcontractors, and equipment used exclusively on that job.

Question 3

What is the purpose of a contractor's 'contingency' in a project budget?

Accepted Answer

To cover unforeseen costs and risks not included in the base estimate

Answer

A contingency is an amount added to the project budget to cover unexpected costs, risks, and uncertainties that were not fully accounted for in the original estimate.

Question 4

Which financial ratio measures how quickly a contractor can pay its current debts with current assets?

Accepted Answer

Current ratio

Answer

The current ratio (current assets divided by current liabilities) measures a company's ability to meet its short-term obligations with its short-term assets.

Question 5

Under IRS rules, which depreciation method allows contractors to write off more of an asset's value in the early years?

Accepted Answer

Accelerated depreciation (MACRS)

Answer

MACRS (Modified Accelerated Cost Recovery System) is the IRS-required depreciation method for most business assets and front-loads larger deductions in the early years of an asset's life.

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 3