Month: April 2015

Progress Billings in Construction

Progress Billings

Just like a tip of an iceberg, a progress billing for a construction project is an invoice for a small part of the overall contract value. It needs to be recorded correctly and presented to management in a way that is understandable and beneficial for making decisions. This article will introduce the concept and cover how progress billings are presented on the balance sheet.

Mission Statement

Mission Statement

A mission statement is a written document identifying the businesses’ primary reason for existence. It should convey the core values and the principles of the company. It should be reviewed with staff frequently to remind everyone of the chief goals of the company.  

Negative Basis in Business – Tax Shelters

Negative Basis in Business

Negative basis in business refers to the value of the equity investment in the company. It literally means you have no actual equity investment and worse you owe somebody money because other parties have fronted the necessary capital to make the business viable.

Shareholder Dynamics in Small Business

Shareholder Dynamics

The majority of small businesses are owned by a single individual. An additional pool is family owned or controlled. The balance usually involves friends or relatives that are passive in ownership. These forms of ownership create some interesting shareholder dynamics and if not thought out, can create some legal and financial issues in small business when a life changing event occurs. 

Construction Accounting – Balance Sheet Construction in Process Accounts

Construction in Process Accounts

Construction accounting consists of three major groups of accounts. The first and most understood set are the accounts found on the profit and loss statement. Customarily referred to as Cost of Goods Sold or Costs of Construction, these accounts convey the total costs of construction against the revenue earned for those contracts. The second major group is located on the balance sheet in the current assets section. This group is called the ‘Construction in Process’ (CIP) accounts. The third major group is also located on the balance sheet down in the current liabilities section and is called ‘Construction Billings’ or ‘Construction Deposits and Draws’.  

This article explains the balance sheet accounts related to Construction in Process.  I will explain how they are designed, formatted and presented.  In addition, I’ll explain the impact either the completed contract or percentage of completion method has on the corresponding project’s account balance.  Finally, I’m going to explain to you how to interpret the information presented. 

In another article I will go into detail related to Construction Billings and the corresponding deposits and draws.  This article will focus on the Construction in Process/Progress or what is commonly shortened to CIP. 

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