{"id":11248,"date":"2018-08-27T10:25:43","date_gmt":"2018-08-27T14:25:43","guid":{"rendered":"https:\/\/foundationsoft.com\/?p=11248"},"modified":"2025-04-21T11:48:06","modified_gmt":"2025-04-21T15:48:06","slug":"construction-accounting-glossary","status":"publish","type":"post","link":"https:\/\/www.foundationsoft.com\/learn\/construction-accounting-glossary\/","title":{"rendered":"The Definitive Construction Accounting Glossary"},"content":{"rendered":"

In construction and accounting<\/a>, we sometimes throw around a lot of words, acronyms and alphabet soup.\u00a0 In fact, 60% of small business owners<\/a> feel they aren\u2019t knowledgeable when it comes to accounting. That’s why we created a glossary to help! Find out what we’ve been talking about the whole time as you jump around on our Definitive Construction Accounting Glossary, and zoom in on related articles to learn even more.<\/p>\n

<\/span>A<\/span><\/h2>\n

Accounting equation<\/strong>\u00a0states that\u00a0assets<\/a><\/span> = liabilities<\/a><\/span>\u00a0+ equity<\/a><\/span><\/em>. Because it\u00a0forms the basis of the balance sheet<\/a><\/span>, it’s sometimes called the “balance sheet equation” as well as the “basic accounting equation” and is a cornerstone of double-entry bookkeeping<\/a><\/span>.<\/p>\n

Accounts payable (A\/P)<\/strong> are amounts owed and anticipated for payment under the accrual accounting<\/span><\/a> method in construction. They accumulate and are “held” in a separate general ledger account.<\/p>\n

Accounts receivable (A\/R)<\/strong> are amounts earned and anticipated for collection under the accrual accounting<\/span><\/a> method in construction.<\/p>\n

Accrual accounting<\/strong> is a method of\u00a0revenue recognition<\/span><\/a> in which a contractor records income based on when it’s\u00a0earned<\/em> rather than when it’s collected. For example, as soon as an accrual-basis contractor issues an invoice for $1,000 of completed work, they can record $1,000 of revenue. Similarly, accrual-basis accounting recognizes expenses when they’re\u00a0owed<\/em> even before they’re actually paid.\u00a0To “accrue” means to accumulate or add up over time. So the promise of earned revenue is generally “held” in a\u00a0receivables<\/span><\/a> account until the actual cash is collected. Read more \u00bb<\/strong><\/a><\/p>\n\"UG<\/a>\n

AIA billing\u00a0<\/strong>is a specialized progress billing<\/span><\/a> format named after the American Institute of Architects<\/a>\u00a0(AIA). Contractors who perform this billing method often use the AIA Document G702<\/a>\u00a0Application and Certificate for Payment cover sheet and G703<\/a>\u00a0Continuation Sheet schedule of values<\/a><\/span>, or they may use\u00a0similar AIA-type forms.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

ASC 606, Revenue from Contracts with Customers<\/strong>, is the\u00a0newest set of accounting standards for recognizing revenue<\/a><\/span>\u00a0in construction accounting and other industries. ASC 606 introduces a “five-step model” to determine when and how to record income based on the delivery of performance obligations<\/a><\/span> under contract.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

Assets<\/strong> are most simply what a construction business\u00a0has<\/em>. They’re resources that hold value for a construction business because they can lead to cash. Types can include\u00a0current assets<\/span><\/a>, fixed assets<\/span><\/a> and\u00a0other long-term assets<\/span><\/a>.<\/p>\n

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<\/span>B<\/span><\/h2>\n

Backlog<\/strong> is the revenue a contractor still expects to earn on a construction contract before completing the project.<\/p>\n

Balance sheet<\/strong>, or “statement of financial position,” is a\u00a0financial statement<\/span><\/a> that presents a snapshot of all the\u00a0assets<\/span><\/a> (values owned),\u00a0liabilities<\/span><\/a> (values owed) and\u00a0equity<\/span><\/a>\u00a0(values invested) at any one point in time.<\/p>\n

Billings in excess of costs<\/strong> is a financial accounting of project billings that are greater than the actual revenue earned from work performed on the job. This occurs when a contractor invoices for work they haven’t yet completed and is also known as overbillings<\/span><\/a>. To help offset an inflated picture of revenue from overbilling, billings in excess of costs are recorded on a company balance sheet as a liability<\/span><\/a> until the work for those billings are complete.<\/p>\n

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<\/span>C<\/span><\/h2>\n

Capitalize\u00a0<\/strong>is to record a purchase on the balance sheet<\/a><\/span> as an asset<\/a><\/span> rather than on the income statement<\/a>\u00a0as an expense. This allows construction companies to recognize the expense of an asset gradually as it’s used over its useful or depreciable life<\/a><\/span>.<\/p>\n

Cash accounting<\/strong> is a method of\u00a0revenue recognition<\/span><\/a> in which a contractor records income based on when they actually receive payment. Similarly, expenses are recorded when they actually make a payment. Cash accounting is primarily distinguished from\u00a0accrual accounting<\/span><\/a>.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

Cash flows statement<\/strong> is a\u00a0financial statement<\/span><\/a> that shows how changes in a contractor’s operation, finance and investment activities are impacting their cash accounts. A statement of cash flows generally indicates a construction business’ short-term viability and ability to pay bills.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

Certified payroll<\/strong>\u00a0refers to construction payroll reporting\u00a0that a contractor will submit, along with a signed statement of compliance, to a federal, state or local agency for each government contract worked. Certified payroll is often synonymous with\u00a0prevailing wage payroll<\/a><\/span> since it certifies that a contractor has appropriately paid the laborers on a project no less than the required “prevailing” wages. The most common type of certified payroll report is the U.S. Department of Labor’s\u00a0Form WH-347<\/a><\/span>.<\/p>\n

Chart of accounts<\/strong> is the complete and organized list of a contractor’s\u00a0general ledger accounts<\/span><\/a>, which are each of the unique transaction records used to track amounts within the accounting system.<\/p>\n

Completed contract<\/strong> is a method of\u00a0revenue recognition<\/span><\/a> in which a contractor records income and expenses only once they have finished the project. Like\u00a0PCM<\/span><\/a>, completed contract is a type of\u00a0accrual accounting<\/span><\/a> and has several unique advantages. However, the IRS poses several restrictions on when companies can use the completed contract method.<\/p>\n

Costs in excess of billings <\/strong>is a financial accounting of revenue earned from work performed that’s greater than the amount billed so far. This occurs when a contractor doesn’t invoice for all of the work they’ve completed and is also known as underbillings<\/span><\/a>. To help offset a low revenue figure on financial statements caused by underbilling, costs in excess of billings are recorded on a company balance sheet as an asset<\/span><\/a> until the contractor can record that revenue earned.<\/p>\n

Credit\u00a0<\/strong>in construction accounting is a type of bookkeeping transaction entry that increases liability, equity and revenue accounts (“credit accounts”) and decreases expense and asset accounts (“debit accounts”). In\u00a0double-entry bookkeeping<\/span><\/a>, credits are balanced out by debits.<\/p>\n

Current assets<\/strong> are\u00a0assets<\/span><\/a> that can be easily converted cash within 12 months. The clearest example is the money in a checking account. Other current assets can include money market accounts, certificates of deposit, salable inventory,\u00a0accounts receivable<\/span><\/a> and\u00a0retainage<\/span><\/a>\u00a0receivable, expected refunds, prepaid expenses and underbillings<\/span><\/a>.<\/p>\n

Current liabilities\u00a0<\/strong>are obligations that need to be paid within 12 months. Examples can include accounts payable<\/span><\/a> and\u00a0retainage<\/span><\/a>\u00a0payable, accrued liabilities such as payroll taxes, credit used, current portions of long-term debt, and overbillings<\/span><\/a>.<\/p>\n

Current ratio<\/strong> measures a contractor’s\u00a0abillity to pay for their\u00a0current liabilities<\/span><\/a>\u00a0with their current assets<\/span><\/a>. It’s calculated as\u00a0current assets \/ current liabilities<\/em>. A lower current ratio, where current liabilities exceed current assets, can cause credit difficulties. A high current ratio can signal inefficient use of\u00a0working capital<\/span><\/a> if it means that cash is sitting in a bank earning low interest rather than being invested at a more advantageous rate. An alternative is the\u00a0quick ratio<\/span><\/a>.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

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<\/span>D<\/span><\/h2>\n

Davis-Bacon<\/strong>\u00a0generally refers both to the federal Davis-Bacon Act of 1931 and to the construction\u00a0prevailing wage payroll<\/span><\/a> requirements that follow from this and similar legislation.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

Debit<\/strong>\u00a0<\/strong>in construction accounting is a type of bookkeeping transaction entry that increases asset and expense accounts (“debit accounts”) and decreases liability, equity and revenue accounts (“credit accounts”). In\u00a0double-entry bookkeeping<\/span><\/a>, debits are balanced out by credits.<\/p>\n

Deduction<\/strong>\u00a0is an amount an employer takes out of an employee’s earnings and pays on their behalf for employee obligations. Examples include taxes, union dues, garnishments and fringe benefit accounts.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

Depreciation<\/strong>\u00a0is both (1) the natural loss of value over time and (2) the spreading out of an asset<\/span><\/a>‘s\u00a0cost over its life.\u00a0Long-term assets depreciate as they age, receiving wear and tear. But unlike the loss of\u00a0market value<\/em>, which can fluctuate, depreciation is gradual and carefully calculated based on a pre-determined\u00a0depreciable life<\/span><\/a>. Depreciation also ensures that a major expense like new warehouse doesn’t weigh entirely on a single\u00a0income statement<\/span><\/a>. Instead, it spreads the expense out gradually over numerous income statements for the time in which it’s used.<\/p>\n

Depreciable life<\/strong>\u00a0or “useful life” is the time over which a\u00a0long-term asset<\/span><\/a> is expected to hold value for purposes of depreciation<\/a><\/span>.<\/p>\n

Direct costs<\/strong>\u00a0are project expenses that, unlike\u00a0indirect costs<\/span><\/a>, contractors can clearly associate with a single construction job that’s responsible for incurring them. Direct costs increase or decrease only based on a single project’s activity. Examples\u00a0include hourly skilled labor, building materials and subcontracts.<\/p>\n

Double-entry accounting<\/strong>\u00a0or “double-sided accounting” is a method of bookkeeping that records every transaction to two offsetting\u00a0general ledger<\/span><\/a> accounts. Each transaction must have one\u00a0debit<\/span><\/a> and one\u00a0credit<\/span><\/a> in the exact same amount. This two-sided method helps ensure the accuracy of construction bookkeeping by requiring that a contractor’s debits and credits always “balance” or “tie out.” The alternative is known as\u00a0single-entry accounting<\/span><\/a>.<\/p>\n

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<\/span>E<\/span><\/h2>\n

Enterprise resource planning (ERP)<\/strong> often refers to a large software package or suite of applications that integrate multiple core business processes, such as accounting, human resources,\u00a0compliance, production and customer management, among others. ERP systems are also sometimes known as “all-in-one” solutions in distinction to “best-of-breed” software used in combination with each other.<\/p>\n

Equity<\/strong> on a\u00a0balance sheet<\/span><\/a>\u00a0is what the owners of a construction company have invested in the business. It may be called “shareholders equity” or “owner’s equity,” depending on who owns the company. Examples can include capital stock, retained earnings from previous financial periods, and net income for the current period. Along with\u00a0liabilities<\/span><\/a> (what a business\u00a0owes<\/em>), the equity shown on a balance sheet represents how a contractor finances its\u00a0assets<\/span><\/a> (what they\u00a0have<\/em>).<\/p>\n

Equity turnover ratio<\/strong> indicates how a contractor uses its equity to produce sales, using the formula sales \/ equity<\/em>.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

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<\/span>F<\/span><\/h2>\n

Financial statements<\/strong> are the official record of a construction company’s financial activities and position. They can include the\u00a0income statement<\/span><\/a> (or P&L),\u00a0balance sheet<\/span><\/a>\u00a0<\/strong>and\u00a0statement of cash flows<\/span><\/a>.<\/p>\n

Fixed assets<\/strong> are\u00a0assets<\/span><\/a> that (1) are tangible rather than abstract, meaning you can touch and feel them and (2) have a fixed life of usually three months or more, meaning they won’t suddenly lose all value. They represent a stable portion of a construction business’ worth, even though they do\u00a0depreciate<\/span><\/a> over time. Examples include vehicles, construction equipment and buildings.<\/p>\n

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<\/span>G<\/span><\/h2>\n

General and administrative costs (G&A)<\/strong>\u00a0in construction are generally the costs of running a business apart from any revenue-generating construction activities on jobsites, making them distinct from direct<\/a><\/span> or indirect costs<\/a><\/span>. Therefore, G&A will tend to be relatively stable or fixed even as construction activities increase or decrease over time. Examples can include office rent and utilities, administrative salaries and advertising.<\/p>\n

Generally Accepted Accounting Principles (GAAP)<\/strong> is the set of standards and procedures that accountants use to record transactions and prepare financial statements. GAAP combines authoritative standards set by policy boards along with commonly accepted practices.<\/p>\n

General ledger (G\/L)<\/strong> is the primary, authoritative record of a construction company’s financial transactions. The G\/L is made up of various accounts that each track and “hold” particular values as an amount called a balance. Examples of accounts include commercial revenue, direct labor expenses,\u00a0accounts receivable<\/span><\/a>\u00a0and accrued payroll taxes.<\/p>\n

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<\/span>I<\/span><\/h2>\n

Income statement<\/strong> or “profit-and-loss” (P&L) is a\u00a0financial statement<\/span><\/a> that shows how a construction company’s total revenue and expenses add up to either a profit or loss of profits for a given period of time. Generally, a series of income statements will indicate which direction a contractor is trending in and how fast they’re getting there. A simple P&L follows the basic formula of\u00a0income – expenses = profit (or loss)<\/em>.<\/p>\n

Indirect costs<\/strong> are generally job costs that relate to construction activities but, unlike\u00a0direct costs<\/span><\/a>, for which no single job is directly responsible. Indirect costs will typically increase whenever overall construction activities increase. An example might include maintenance costs for a dozer used on numerous\u00a0jobsites.<\/p>\n

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<\/span>J<\/span><\/h2>\n

Job cost structure<\/strong> is the outline of construction activities and cost types that a contractor uses to organize and record their job costing<\/span><\/a> consistently across all projects. A job cost structure may also include project phases among additional levels of organization.<\/p>\n

Job costing<\/strong> is the practice in construction accounting of tracking costs\u00a0to particular projects and job activities according to a\u00a0job cost structure<\/span><\/a>. While a contractor records company financial transactions in the\u00a0general ledger<\/span><\/a>, job costing records project-based transactions in a separate component of the construction accounting system, which allows both the general ledger and job costing sides to match.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

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<\/span>L<\/span><\/h2>\n

Leverage<\/strong> is a contractor’s proportion of debt to\u00a0equity<\/span><\/a>. In other words, leverage compares how much creditors<\/em> have invested in a construction company (debt) with how much ownership<\/em> has invested (equity). A higher leverage ratio generally indicates greater risk.<\/p>\n

Liabilities<\/strong> are\u00a0most simply what a construction business\u00a0owes<\/em>. From the perspective of a balance sheet and the accounting equation<\/a><\/span>, it’s how a contractor finances its\u00a0assets<\/span><\/a> (what they\u00a0have<\/em>). Types of liabilities can include\u00a0current liabilities<\/span><\/a>\u00a0and\u00a0long-term liabilities<\/span><\/a>.<\/p>\n

Lien waiver\u00a0<\/strong>is a document that certifies that the contractor, subcontractor or vendor has received a certain amount in payment and therefore gives up any potential claim on that much of the property’s value. For example, if a subcontractor receives $50,000 for their work on a job, they might issue a lien waiver that says they won’t dispute $50,000 worth of the value they added to that property. Lien waivers can be either conditional or unconditional and be used for either progress or final payment.<\/p>\n

Long-term assets (or noncurrent assets)<\/strong>\u00a0other than\u00a0fixed assets<\/span><\/a>\u00a0are resources that a construction business has but that wouldn’t be available as cash in less than 12 months. They can include assets held for investment like land or stock, long-term deposits like leases, or intangible assets like trademarks or customer lists.<\/p>\n

Long-term liabilities (or noncurrent liabilities)<\/strong>\u00a0are\u00a0liabilities<\/span><\/a> or obligations that a construction business isn’t expected to pay within 12 months. Examples can include the principal on long-term debts like loans or capital leases.<\/p>\n

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<\/span>M<\/span><\/h2>\n

Matching principle<\/strong> is a basic guideline of accounting that states that a company must report an expense on its income statement<\/a><\/span> in the same financial period that it records revenues that are related to that expense.<\/p>\n

Mechanic’s lien <\/b>or “construction lien”\u00a0is a claim on a property filed by a contractor, subcontractor or supplier who added to its value through labor or materials but who has not yet been paid. Once a party receives payment, they can cancel the mechanic’s lien, or if they haven’t filed a lien, they might issue a\u00a0lien waiver<\/span><\/a> in order to waive any potential lien rights.<\/p>\n

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<\/span>N<\/span><\/h2>\n

Net D <\/b>is a common form of construction payment terms, under which the invoiced party has a specified number of days (“D”) to pay the full (“net”) amount. For example, under “net 30” payment terms, a customer has 30 days after invoicing to pay the full amount with no discounts offered. If a vendor does offer a discount to incentivize customers to pay earlier, such as 2.5% off when paid within 10 days, it may be expressed as “2.5\/10 net 30.”<\/p>\n

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<\/span>O<\/span><\/h2>\n

Overbillings\u00a0<\/strong>occur when a contractor bills ahead of work completed as identified on the\u00a0WIP schedule<\/span><\/a>\u00a0or over\/under billings report. For example, if a contractor has billed 60% of a job’s estimated revenue but calculates it as only halfway through its estimated costs, it’s overbilled. Construction CPAs and sureties generally see some\u00a0amount of overbilling as positive. Overbilling keeps contractors ahead of their cash flow; however, overbilling is essentially borrowing on future work that still has to be completed. Too much overbilling will eventually catch up with a contractor.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

Overhead allocation<\/strong> is the practice\u00a0in construction accounting of recognizing costs that are the responsibility of multiple jobs and spreading them across multiple jobs proportionally. Contractors can use numerous overhead allocation methods<\/a>.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

Overhead <\/strong>is typically a broad category of costs that aren’t caused by any single construction project (direct costs<\/span><\/a>). In this view, there are two kinds of overhead:\u00a0indirect costs<\/span><\/a> and\u00a0general and administrative costs (G&A)<\/span><\/a>.<\/p>\n

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<\/span>P<\/span><\/h2>\n

Percentage-of-completion (PCM)\u00a0<\/strong>is a method of\u00a0revenue recognition<\/span><\/a> in which a contractor records income based on how much of the project they’ve completed. Because PCM is an\u00a0accrual method<\/span><\/a>, income is recognized when the contractor bills rather than when they’ve received payment. Construction CPAs can advise contractors on a number of different PCM methods to determine how much of the project “counts” as complete. These include cost-to-cost methods, physical completion methods and labor methods. The IRS requires contractors whose revenue exceeds a certain annual average or whose contracts are a certain length to use this method for tax purposes.<\/p>\n

Performance obligation<\/strong>\u00a0under the ASC 606<\/a><\/span> revenue recognition standards is a promise in a contract with a customer to transfer to them either: (a) a good or service (or a bundle of goods or services) that is distinct or (b) a series of distinct goods or services that are substantially the same and have the same pattern of transfer to the customer.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

Prevailing wage<\/strong> is the rate of compensation that “prevails,” or represents the standard, for each class or trade of construction laborer on a similar job in the same area. Government agencies determine the prevailing wages within their jurisdiction for public-works projects and require contracted construction companies to certify their compliance using\u00a0certified payroll reports<\/span><\/a>.<\/p>\n

Profit fade<\/strong> is the gradual loss of gross profit on a construction project. When profit fade occurs, the project at one point appeared to have a greater promise of profitability, but an increase in unexpected or unaccounted costs or production may begin to exceed billings.<\/p>\n

Progress billing<\/strong> occurs when contractors bill based on how much of the project is completed at each interval. For example, if a company’s completed 25% of a contract, their total invoices to the customer would equal 25% of the contract value. A simple progress billing formula is percentage complete *\u00a0<\/em>(contract\u00a0amount + approved change orders) = amount billed<\/em>.<\/p>\n

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<\/span>Q<\/span><\/h2>\n

Quick ratio<\/strong> measures a contractor’s ability to pay for their\u00a0current liabilities<\/span><\/a> without having to convert non-cash\u00a0assets<\/span><\/a> to cash. It’s calculated as\u00a0(cash + receivables) \/ current liabilities<\/em>. Therefore, unlike the current ratio<\/span><\/a>, the quick ratio factors out certain assets like prepaids, inventory and underbillings<\/span><\/a>.\u00a0A contractor with a lower quick ratio may not be able to cover their obligations\u00a0without having to sell inventory. A high quick ratio can indicate inefficient use of cash.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

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<\/span>R<\/span><\/h2>\n

Receivables turnover ratio<\/strong> indicates how effectively a contractor collects on the credit it extends, using the formula net annual credit\u00a0<\/em>sales \/ average accounts receivable\u00a0<\/em>for a given period. As a result, this ratio is equal to the number of times that the construction business collects its average A\/R.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

Request for change order (RFC)<\/strong>\u00a0is a project document that a contractor may submit to an owner or designer in order to request a change to the scope of work, schedule or monetary value of a construction contract.<\/p>\n

Request for information (RFI)<\/strong>\u00a0is a project document that formally records a contractor’s questions about the design or specifications under a particular construction contract. RFIs are often used during the bidding and construction phases of the project cycle to gain additional clarification, resolve any discrepancies and prevent costly corrections later.<\/p>\n

Request for proposal (RFP)<\/strong>\u00a0is a project document that an owner may use to solicit bids from contractors on a project by detailing the scope of work, contract terms and bidding process. In response to the RFP, a contractor would submit a proposal of how they would execute the job and how much they would charge.\u00a0“RFP” can also be an abbreviation in construction for “request for pricing.”<\/p>\n

Retainage<\/strong>\u00a0is the predetermined amount of money that an owner may withhold from payment until they’re satisfied with the completion of a contract. Contractors often track retainage in a dedicated G\/L account<\/a><\/span> separate from other\u00a0accounts receivable<\/span><\/a> until it becomes billable. Retainage is most often a percentage of the total revised contract value, including approved change orders.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

Revenue recognition<\/strong>\u00a0or “income recognition” refers to the consistent rules a contractor uses to determine when they’ve officially made money on a project. The main methods of construction revenue recognition traditionally include cash-basis<\/span><\/a>,\u00a0completed contract<\/span><\/a> and\u00a0percentage-of-completion<\/u><\/a>\u00a0but currently fall under the new guidance of ASC 606<\/a><\/span>.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

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<\/span>S<\/span><\/h2>\n

Schedule of values (SOV)<\/strong> is a line-item list of each task or component of a particular project, along with its description, quantities and cost, that add up to the total price of a construction contract.<\/p>\n

Section 179<\/strong>\u00a0refers to an IRS tax rule that allows businesses, including construction contractors, to subtract the purchase cost of qualifying equipment and software from their taxable income in the same year they were bought. The Section 179 deduction does have a limit on the amount that can be deducted; however, a “bonus depreciation deduction” may be applied to amounts above that limit. Read more \u00bb<\/strong><\/a><\/p>\n

Single-entry accounting<\/strong>\u00a0is a method of bookkeeping used by some small construction businesses and in personal finances. Each transaction is recorded as a single item adding to or subtracting from a total account balance. Single-entry accounting is distinguished from\u00a0double-entry accounting<\/span><\/a>.<\/p>\n

Software as a service (SaaS)\u00a0<\/strong>is a model of making software available to users online by hosting it on vendor-owned or third-party servers, rather than installing it only on particular computers. Because a user will access SaaS applications from the internet rather than their computer’s hard drive, it’s often referred to as “cloud” software or “cloud computing.”<\/p>\n

Submittal\u00a0<\/strong>is a project document that a contractor or subcontractor provides, typically to the design team, for approval in order to verify the correct materials and specifications. Submittals might include shop drawings, physical samples, technical data sheets and spec sheets.<\/p>\n

Surety<\/strong> is a party, such as a bond agent, that assumes the risk and responsibility for a contractor’s performance on a construction project. A surety bond generally reduces the owner’s risk by helping ensure satisfactory contract completion and reduces a subcontractors’ risk by helping ensure payment.<\/p>\n

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<\/span>T<\/span><\/h2>\n

Time-and-material billing<\/strong>\u00a0bases the construction contract price on a per-hour labor rate plus\u00a0<\/em>the cost of materials used. The contractor may also include a standard markup.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

Transmittal\u00a0<\/strong>is a formal communication of project documents such as shop drawings and specifications that, unlike\u00a0submittals<\/span><\/a>,\u00a0RFCs<\/span><\/a>,\u00a0RFIs<\/span><\/a>,\u00a0RFPs<\/span><\/a>, etc., doesn’t require a response from the recipient. A transmittal document can also refer to the cover page of a submitted project document.<\/p>\n

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<\/span>U<\/span><\/h2>\n

Underbillings<\/strong> occur when a contractor bills for less money than they’ve earned for work completed as calculated by the\u00a0WIP schedule<\/span><\/a>\u00a0or over\/under billings report. For example, if a contractor has only billed 40% of a job’s estimated revenue but has already encountered half of its estimated costs, the project is underbilled. Underbillings are generally considered by construction CPAs and sureties to be undesirable. Substantial or persistent underbilling can result in negative cash flow and indicate numerous other issues. These may include poor A\/R management, inaccurate estimating or a large number of unapproved change orders.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

Uninstalled materials<\/strong> under the ASC 606<\/a><\/span> revenue recognition guidance include materials that are (a) not distinct, (b) expected to transfer into customer control significantly before receiving related services, (c) significant in cost relative to the total expected costs for satisfying the performance obligation<\/a><\/span>\u00a0and (d) procured from a third-party without significant design or manufacturer on the part of the contractor.<\/p>\n

Unit price billing<\/strong>\u00a0uses a fixed price-per-unit rate with which to invoice a contractor’s customer.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

Useful life<\/strong> see\u00a0depreciable life<\/span><\/a>.<\/p>\n

Back to the top<\/a><\/p>\n\"Watch<\/a>\n

<\/span>W<\/span><\/h2>\n

WH-347<\/strong> is a federal form published by the U.S. Department of Labor to report\u00a0certified payroll<\/span><\/a> compliance under government contracts.<\/p>\n

WIP (work-in-progress or work-in-process)<\/strong> is a report designed to track the progress of active jobs, as well as their financial performance. In addition to looking at the percentage of completion and the cost to complete, it also determines whether a job is\u00a0overbilled<\/span><\/a> or\u00a0underbilled<\/span><\/a> relative to its progress. When using the\u00a0percentage-of-completion\u00a0method<\/span><\/a> for\u00a0revenue recognition<\/span><\/a>, companies include a WIP schedule with their financial statements.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

Working capital\u00a0<\/strong>is the amount of money that a contractor has free and available to use for construction operating activities. It’s calculated as\u00a0current assets<\/a><\/span> – current liabilities<\/a><\/span><\/em>.<\/p>\n

Working capital turnover ratio<\/strong> indicates how a contractor uses its capital to produce sales, using the formula sales \/ working capital<\/em>. A high ratio may indicate lack of sufficient capital to support sales growth, whereas too low of a ratio could suggest they’re putting working capital to work inefficiently. contractor with a lower quick ratio may not be able to cover their obligations\u00a0without having to sell inventory.\u00a0Read more \u00bb<\/strong><\/a><\/p>\n

Back to the top<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

In construction, we sometimes throw around a lot of words, acronyms and alphabet soup. Find out what we’ve been talking about the whole time as you jump around on our Definitive Construction Accounting Glossary, and zoom in on related articles to learn even more.<\/p>\n","protected":false},"author":17,"featured_media":1680,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_searchwp_excluded":"","inline_featured_image":false,"footnotes":""},"categories":[9,16],"tags":[11,14,12,19],"class_list":["post-11248","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-articles","category-reporting-bookkeeping","tag-construction-reporting","tag-job-costing","tag-payroll","tag-project-management"],"acf":[],"yoast_head":"\nThe Definitive Construction Accounting Glossary A-Z<\/title>\n<meta name=\"description\" content=\"In construction and accounting, we throw around a lot of words, acronyms and alphabet soup. 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