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Founded in 1975, Jones, Henle & Schunck (JHS) has grown into one of California’s
most respected CPA firms assisting construction contractors.
JHS is proud of its 40-year contribution to helping and the success of our contractor client in an
thousands of contractors identify and address ever-changing market.
financial issues that give them better control over
regulatory and compliance rules and in mapping You will find schedules included in this guide illus-
and managing the creation of wealth. trating common financial ratios used by our
business partners (banks and surety
Our firm is dedicated to helping
Our firm companies) as well as a step-by-step
companies grow and reach their is dedicated guide on how to compute income
full potential. Our approach is to earned using the percentage-of -
work as a team, helping you
to helping completion method.
make the best decisions for your companies grow
financial statements, your tax Please use the contents page to
and reach their help you navigate through this
situation, and your bottom line.
full potential. easy-to-use guide to construction
We are more than a CPA firm for our accounting and give any of our ac-
clients. Together with our contractors’ counting and tax professionals a call if
banks and surety companies, we are a cohesive you have any questions or would like to discuss
team of business partners working together for a our firm in more detail. Our office locations and
common goal: understanding of the construction contact information are listed below for your
industry, expectations of our business partners, convenience.
135 Town & Country Drive, P.O. Box 9500, Danville, California 94526
ph (925) 820-1821, fx (925) 820-8266
www.jhs.com
GUIDE TO CONSTRUCTION ACCOUNTING
TABLE OF CONTENTS
SECTION 1
Construction Industry Common Financial Ratios . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
SECTION 2
Computing Income Under the Percentage-of-Completion Method . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2–3
SECTION 3
Independent Accountants’ Review Report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
SUPPLEMENTAL INFORMATION
Schedule 1:
Schedule of Earnings from Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
Schedule 2:
Schedule of Completed Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
Schedule 3:
Schedule of Contracts in Progress . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
Schedule 4:
Schedules of General and Administrative Expenses and Other Income (Expense) . . . . . . . . . . . . . . . . . . . . . . . 21
GUIDE TO CONSTRUCTION ACCOUNTING section one
Liquidity Ratios:
Accounts Receivable Turnover A/R X 360 (A/R = $2.25M) $ 810,000,000 45 days or less
Revenue 25,000,000 (Excluding Retention)
32.40
Accounts Payable Turnover A/P X 360 (A/P = $1.25M) $ 450,000,000 45 days or less
Cost of Revenues Earned 22,500,000 (Excluding Retention)
20.00
1
GUIDE TO CONSTRUCTION ACCOUNTING section two
A B C D E F G
A-B E+F I*C
TOTAL FROM INCEPTION TO DECEMbER 31, 20XX
2
GUIDE TO CONSTRUCTION ACCOUNTING section two
H I J K L M N
B-E E/B D-G G-D
3
GUIDE TO CONSTRUCTION ACCOUNTING section three
Danville, California
February 5, 2015
4
GUIDE TO CONSTRUCTION ACCOUNTING section three: sample financial statements
ASSETS
Current Assets:
Cash $ 2,453,481
Receivables:
Contracts — current $ 3,194,972
Contracts — retention 819,543
Total receivables 4,014,515
Costs and estimated earnings in excess of
billings on uncompleted contracts 634,943
Prepaid expenses and deposits 67,130
Total current assets 7,170,069
Property and equipment, net 210,666
Investments 2,100,000
Total assets $ 9,480,735
(See independent accountants’ review report and accompanying notes to financial statements)
5
GUIDE TO CONSTRUCTION ACCOUNTING section three: sample financial statements
(See independent accountants’ review report and accompanying notes to financial statements)
6
GUIDE TO CONSTRUCTION ACCOUNTING section three: sample financial statements
Contract costs:
Labor and labor burden $ 15,185,327
Materials 9,949,468
Subcontractors 4,668,134
Equipment 1,758,018
Other 1,088,060
(See independent accountants’ review report and accompanying notes to financial statements)
7
GUIDE TO CONSTRUCTION ACCOUNTING section three: sample financial statements
(See independent accountants’ review report and accompanying notes to financial statements)
8
GUIDE TO CONSTRUCTION ACCOUNTING section three: sample financial statements
(See independent accountants’ review report and accompanying notes to financial statements)
9
GUIDE TO CONSTRUCTION ACCOUNTING section three: sample financial statements
NOTE 1 ORgANIZATION
XYZ Construction Company, Inc. (Company) is a contractor specializing in clean up of hazardous materials.
The Company was incorporated in California in 1993 and performs most of its work in Northern California.
10
GUIDE TO CONSTRUCTION ACCOUNTING section three: sample financial statements
11
GUIDE TO CONSTRUCTION ACCOUNTING section three: sample financial statements
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GUIDE TO CONSTRUCTION ACCOUNTING section three: sample financial statements
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GUIDE TO CONSTRUCTION ACCOUNTING section three: sample financial statements
Under the Employee’s Retirement Income Security Act of 1974, as amended in 1980, the Company may be
liable, on termination or withdrawal from the plan, for an allocated share of the plan’s unfunded benefits.
Information with respect to the Company’s portion of the value of net assets available for plan benefits and
actuarial present value of vested accumulated plan benefits was not available from the plan’s administrator.
However, management of the Company is not aware of any unfunded vested benefits to which they are a
party. The Company currently has no intention to terminate or withdraw from the plan.
14
GUIDE TO CONSTRUCTION ACCOUNTING section three: sample financial statements
$ (1,080,573)
15
GUIDE TO CONSTRUCTION ACCOUNTING section three: sample financial statements
Deferred income tax benefit reflect the net effects of temporary differences between the carrying amounts
of assets and liabilities for financial reporting and the amounts used for income tax purposes.
On January 1, 2009, the Company adopted the standard which clarifies the accounting for uncertainty in
income taxes recognized in an entity’s financial statements as required by the “Accounting for Uncertainty
in Income Taxes” topic of the FASB Accounting Standards Codification. The standard prescribes a recognition
threshold and measurement for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return. The adoption of the standard did not have an effect on the Company.
The Company files U.S. federal and California state income tax returns. The Company’s federal income tax
returns of tax years 2011 and subsequent thereto remain subject to examination by the Internal Revenue
Service. The impact of any examination adjustments would be incurred at the stockholder level. The Company’s
California income tax returns of the tax years 2010 and subsequent thereto remain subject to examination
by the Franchise Tax Board. In addition, net operating loss carryforwards which may be used in future years
are still subject to adjustment.
The Company did not have unrecognized tax liabilities as of December 31, 2014, and does not expect this to
change over the next 12 months. In connection with the adoption of this accounting standard, the Company
will recognize interest and penalties accrued on any unrecognized tax as a component of income tax expense.
As of December 31, 2014, the Company has not accrued interest and penalties related to uncertain tax positions.
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GUIDE TO CONSTRUCTION ACCOUNTING section three: sample financial statements
NOTE 13 CONTINgENCIES
The Company is involved in various matters of construction litigation, claims and disputes which have arisen
in the ordinary course of its business. While the resolution of any of these matters may have an impact on
the financial results for the period in which the matter is resolved, management believes that the ultimate
disposition of these matters will not, in the aggregate, have a material adverse effect upon their business or
financial position, results of operations or cash flows.
The Company enters into agreements with subcontractors on their projects. Some agreements do not require
the subcontractor to provide payment or performance bonds. If the subcontractor were to default on its
contract, the Company would be liable for completion of the subcontract. Management does not anticipate
any subcontractor defaulting on their contract obligations.
17
GUIDE TO CONSTRUCTION ACCOUNTING section three: supplemental information
(See independent accountants’ review report and accompanying notes to financial statements)
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GUIDE TO CONSTRUCTION ACCOUNTING section three: supplemental information
AT
DECEMbER 31, 2014
FOR ThE YEAR ENDED
TOTAL FROM INCEPTION TO DECEMbER 31, 2014 Costs and billings in DECEMbER 31, 2014
Estimated Excess of
Estimated Earned Contract Estimated Earnings in Costs and Earned
Contract Contract Estimated Estimated gross Contract Costs gross Contract Costs to Percent Excess of Estimated Contract Contract gross
Number Description Revenue Costs Profit Revenue to Date Profit billings Complete Complete billings Earnings Revenue Costs Profit
2131 One Maritime P $ 2,102,063 $ 1,377,284 $ 724,779 $ 2,060,021 $ 1,349,738 $ 710,283 $ 1,974,732 $ 27,546 98% $ 85,289 $ - $ 1,188,539 $ 727,669 $ 460,870
3177 Ascend School 1,229,253 921,940 307,313 1,009,719 757,722 251,997 1,115,490 164,218 82% - 105,771 924,895 707,254 217,641
4072 Murphy School 1,478,287 1,108,715 369,572 575,395 431,262 144,133 554,650 677,453 39% 20,745 - 575,395 431,262 144,133
4113 425 Market Spr 1,101,600 771,120 330,480 620,131 435,062 185,069 546,174 336,058 56% 73,957 - 620,131 435,062 185,069
4170 Kaiser St Prid 1,495,722 1,279,724 215,998 975,877 835,478 140,399 1,377,851 444,246 65% 401,974 975,877 835,478 140,399
4179 Kaiser Ssf - P 2,127,400 1,701,920 425,480 1,119,900 894,396 225,504 1,101,920 807,524 53% 17,980 - 1,119,900 894,396 225,504
4211 Dot 3,514,815 3,233,630 281,185 1,803,130 1,659,726 143,404 2,421,854 1,573,904 51% - 618,724 1,803,130 1,659,726 143,404
4243 3300 College D 2,418,748 2,225,248 193,500 779,380 717,460 61,920 1,069,489 1,507,788 32% - 290,109 779,380 717,460 61,920
4247 Mezzetta Court 1,295,692 906,984 388,708 870,222 609,788 260,434 759,438 297,196 67% 110,784 - 870,222 609,788 260,434
4268 Sonoma State D 4,015,000 3,533,200 481,800 3,162,429 2,781,807 380,622 3,218,475 751,393 79% - 56,046 3,162,429 2,781,807 380,622
4295 One Cal 14Th F 4,193,000 3,815,630 377,370 2,931,819 2,667,660 264,159 3,096,500 1,147,970 70% - 164,681 2,931,819 2,667,660 264,159
4310 Carmichael Lib 2,524,279 2,145,637 378,642 1,159,448 985,273 174,175 1,012,500 1,160,364 46% 146,948 - 1,159,448 985,273 174,175
Uncompleted
contracts less
than $450,000 7,601,688 5,539,533 2,062,155 2,010,146 1,414,694 595,452 1,909,117 4,124,839 179,240 78,211 1,711,561 1,126,443 585,118
$35,097,547 $28,560,565 $6,536,982 $ 19,077,617 $15,540,066 $ 3,537,551 $ 20,158,190 $ 13,020,499 $ 634,943 $1,715,516 $17,822,726 $14,579,278 $3,243,448
Rent 422,460
Miscellaneous 40,054