NASCLA Financial Management and Accounting 1

Question 1

What is the primary purpose of job cost accounting in construction?

Accepted Answer

To track costs by individual project to monitor profitability and budget compliance

Answer

Job cost accounting tracks all labor, material, equipment, and overhead costs by project, allowing contractors to compare actual costs against estimates and manage project profitability.

Question 2

Which financial statement shows a company's revenues, expenses, and net profit over a period of time?

Accepted Answer

Income statement (Profit and Loss statement)

Answer

The income statement, also called a Profit and Loss statement, summarizes revenues and expenses over a specific period to show the company's net profit or loss.

Question 3

What is the difference between 'gross profit' and 'net profit' for a contractor?

Accepted Answer

Gross profit is revenue minus direct job costs; net profit is gross profit minus overhead expenses

Answer

Gross profit equals revenue minus direct job costs (labor, materials, subs), while net profit is gross profit minus all overhead and administrative expenses.

Question 4

Which method of accounting is most commonly required for contractors with annual revenues exceeding $26 million?

Accepted Answer

Percentage-of-completion method

Answer

The percentage-of-completion method recognizes revenue and expenses proportionally as a project progresses and is required by the IRS for large long-term contractors.

Question 5

What does 'accounts receivable' represent on a contractor's balance sheet?

Accepted Answer

Money owed to the contractor for completed work that has not yet been paid

Answer

Accounts receivable represents amounts owed to the contractor by clients for work already performed and billed but not yet collected.

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 1