Contractor's Accounting Glossary

Contractor's Accounting Glossary

A

Accounts Payable – The amount of money owed to suppliers, subcontractors, and vendors for goods and services received.

Accounts Receivable – The amount of money owed to the contractor by customers for goods and services provided.

Accrued Expenses – Expenses that have been incurred but not yet paid.

Accrued Revenue – Revenue that has been earned but not yet received.

Actual Cost – The actual cost of a job, including labor, materials, and overhead.

AIA Billing – A standardized billing method based on forms from the American Institute of Architects, commonly used in construction contracts.

Allowance – A sum of money set aside to cover potential costs or losses.

Applied Overhead – The overhead costs allocated to a specific job.

Asset Utilization – A measure of how efficiently a company uses its assets to generate revenue.

Audit – A formal examination of a company’s financial records and practices.

B

Back Charges – Charges made against a subcontractor for work not performed according to specifications.

Balance Sheet – A financial statement showing a company’s assets, liabilities, and equity at a point in time.

Bond – A guarantee of payment or performance for a contract.

Break-Even Analysis – Calculates the point where revenue equals costs.

Budget Analysis – Evaluating actual performance against projected financial goals.

Burdened Labor Rate – Total cost of an employee including wages, benefits, taxes, and overhead.

Business Interruption Insurance – Insurance that covers losses from unexpected business interruptions.

C

Cash Flow – Cash or cash-equivalents moving in and out of a business.

Cash Flow Projection – Forecast of future cash flow over a period.

Certified Payroll – Payroll reports required on government-funded projects to show compliance with labor laws.

Change Order – A written agreement changing the scope of a contract.

Claim – A request for additional compensation or time by a contractor or subcontractor.

Completion Bond – A surety bond guaranteeing that a contractor will finish a project.

Construction Accounting – Accounting specialized for construction project finances.

Contingency – Funds set aside for potential unexpected costs.

Contract – A legally binding agreement between parties.

Cost Accounting – Tracking and analyzing project-related costs.

Cost Code – A specific code to categorize job costs.

Cost of Goods Sold (COGS) – Cost of materials and labor used for a project.

Cost Overrun – When actual project costs exceed estimates.

Cost Plus Contract – A contract where the client pays actual costs plus a markup.

Credit – An accounting entry indicating a decrease in assets or an increase in liabilities.

D

Debit – An accounting entry indicating an increase in assets or a decrease in liabilities.

Depreciation – A reduction in the value of an asset over time.

Direct Costs – Costs directly tied to project work, like materials and labor.

Direct Labor – Wages and benefits for workers directly involved in production.

Draw Request – A formal request for payment based on completed work.

E

Earned Value – Measures project performance by comparing work completed to planned work.

Encumbrance – Reserved funds not yet spent.

Estimate – A calculated guess of a project’s cost.

F

Fixed Costs – Costs that remain constant regardless of work volume.

Float – The time a task can be delayed without affecting the project timeline.

Fringe Benefits – Additional employee compensation, such as health insurance and vacation.

G

General Ledger – A record of all financial transactions.

General Liability Insurance – Insurance covering claims of injury or damage caused by the business or its employees.

Gross Profit – Revenue minus COGS before operating expenses.

Guaranteed Maximum Price (GMP) – A contract cap limiting the total project cost.

I

Income Statement – A financial report showing revenue, expenses, and net income over a time period.

Indirect Costs – Costs not directly tied to project work.

Indirect Labor – Labor costs for staff not directly working on a job, like supervisors.

Insurance – A tool to protect financially from unexpected events.

Intercompany Transactions – Transactions between related legal entities.

J

Job Costing – Tracking and analyzing costs for a specific job.

Joint Check Agreement – An agreement where payment is issued to a subcontractor and their supplier jointly.

L

Labor Burden – Indirect costs associated with employing workers, such as payroll taxes and benefits.

Lien Waiver – A document waiving the right to file a lien for non-payment.

Liquidated Damages – A contract-specified amount paid for failure to meet terms.

Look-Back Method – IRS method for adjusting estimated tax liabilities for long-term contracts.

Long-Term Debt – Debt not due within 12 months, typically for large purchases.

M

Markup – An added amount to determine the selling price.

Material Overhead – Costs related to material purchase and storage.

Mechanic’s Lien – Legal claim by a contractor for unpaid services.

Milestone – Key project event or phase triggering payment or indicating progress.

Minimum Billing Threshold – Minimum amount required before issuing a billing.

Mobilization – Preparing a job site for construction.

Mortgage – Loan secured by real property.

N

Net Income – Income remaining after expenses and taxes.

Notice of Commencement – A legal document marking the start of a project.

Notice to Owner – A notice sent informing the owner of lien rights.

O

Overhead – Indirect business expenses like rent and utilities.

Owner-Furnished Materials (OFM) – Materials supplied by the project owner.

P

Payroll – Total employee wages and related costs.

Percent Complete Method – Recognizing revenue and expenses based on work progress.

Prequalification – Evaluating a contractor’s capability to bid on a project.

Progress Billing – Invoicing based on the percentage of work completed.

Project Budget – Estimated cost of the full project.

Project Cost Report – Tracks actual project costs against the budget.

Punch List – List of final items to complete or correct before final payment.

Q

Quantity Survey – Detailed analysis of materials and labor needed.

R

Request for Information (RFI) – A formal request to clarify contract documents.

Retainage – Portion of payment withheld until project completion.

Revenue Recognition – Accounting principle for recording earned revenue.

S

Schedule of Values – Breakdown of project components with assigned dollar values.

Subcontractor – Hired entity responsible for a specific scope of work.

Substantial Completion – Stage when a project can be used for its intended purpose.

T

Tax Basis – Value of an asset for tax purposes.

Time and Materials Contract – A contract billing for actual costs plus a markup.

Trial Balance – A summary of account balances used to check ledger accuracy.

U

Unapproved Change Order – Change request not yet authorized.

Unit Price Contract – A contract that pays a set price per unit of work.

V

Value Engineering – Optimizing cost by changing materials or methods.

Variance Analysis – Comparing actual costs to budgeted costs.

W

Waiver of Subrogation – Prevents insurers from seeking reimbursement after a claim.

Work in Progress (WIP) – Work completed but not yet billed.

Workforce Management – Tracking and managing employee time, attendance, and payroll.

Z

Zero-Balance Account – A bank account with a zero balance, used for specific disbursements.

Zoning Compliance – Confirmation that a project meets zoning laws.