Construction Technology Insider - Episode 2: Keys to Construction Accounting
May 2, 2013Presenter by: Olivia Roemer, CCIFPConstruction Technology InsiderEpisode 2Keys to Construction Accountinghttp://www.teamtag.net/
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Keys to Construction Accounting• KISS (Keep it Simple Silly!)• Cash Is King• Billings are Money• Streamlined Accounts Payable Process• Accurate Payroll Processing• Change Order Procedure• Reconcile and Review• Accurate Job Costing
KISS (Keep it Simple Silly!):• Do not overcomplicate the process.• If you don’t understand how it’s working, you won’tunderstand what it’s telling you.• Keep this in mind and the cost to produce validinformation is much more manageable.Cash is King:• Accurately accounting for the money received andspent.• Reconcile bank account(s) statement(s) to theaccounting records on a monthly basis will help ensurethat all cash activity has been captured.
Billings are Money:• Timely and accurate billing is the key step to creatingcash.• Billing should be done on a regular basis and thecollection of those billings should be closely monitored.Accurate Accounts Payable Process:• Payables that are not processed timely and accuratelywill result in:• Billings being processed late• Useless planning and budgeting• Persistent unwanted surprises
Payroll Processing:• For accurate job costing, payroll must be entered with Joband Cost code detail.• Determine how payroll time will be collected.• Manually using a time card• Electronically, using various mobile time collectiontechnology.• Accurate payroll information can be used to create laborproduction reports.Change Order Procedure:• Proper use of change orders are important to job costing.• Keep you budgets up to date by entering changes to yourscope of work (change orders) will help you analyze whereyou excel and/or where improvement is needed.
Reconcile and Review:• Reconcile cash, investments and credit card liabilitiesto a third party statement on a monthly basis.• The activity in accounts receivable, accounts payableand other significant balance sheet accounts should bereviewed on a monthly basis for reasonableness.•This will help ensure accurate job costs andfinancial statements.
Keys to Job Costing:The “keys to accounting” previously discussed alsoapplies here, however, there are a few other issues toconsider such as:• Identify Key Cost Components• Tracking Cost Components• Performance Measurements• Monitor Results• Make Adjustments
Identify Key Cost Components:• Labor & Labor Burden• Equipment•Materials• Subcontractor• Any other significant costs that relate to your contractperformance.• These would typically be the same costs youestimate in the bid process.
Tracking Cost Components:• Determine a method to track the costs by job.• Consideration should be given to the accountingsystem in place and its ability to generate and/or trackcost flows.•Include bid and revised estimates within the job costsystem.Performance Measurements:• Consideration should be given to include performancecriteria within the job cost system.• Items such as pounds/yards, etc.• Man hours• Material per square foot, etc.
Monitor Results:Review the results on the job to assist in evaluatingperformance, as well as assist in estimating future bidsand making business decisions.Make Adjustments:As the business and/or jobs change, the job cost systemmay need to be modified to meet the new changes.
Accounting & Job Costing-Rule of Thumb Strategy:1. Keep the accounting and job cost process simple.2. The information produced should be relevant andunderstandable.3. Review and use the information to make individualsaccountable and good business decision.4. Accounting and job costing are not the answers butthey can assist in getting them.