Financial Management and Accounting Flashcards

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

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

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.

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

Answer: Income statement (Profit and Loss statement)

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.

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

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

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

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

Answer: Percentage-of-completion method

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.

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

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

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

A contractor's 'overhead rate' is calculated by dividing total overhead costs by:

Answer: Total direct labor costs or total direct costs

The overhead rate is calculated by dividing total overhead costs by total direct labor or direct costs, used to allocate indirect costs to individual projects.