A second and easier method of accounting with project accounting (construction) is the completed contract method. This method does not utilize an engineering or detailed production schedule (chart) like the percentage of completion method. It works well with any duration for project timelines.
Month: October 2017
In project accounting there are two different methods of accounting used. The first is the completed contract method which is explained in more detail in Lesson 75. The second and the focus of this lesson is the percentage of completion method of accounting. This method is an advanced skill for accountants and requires knowledge of its proper application along with a new type of control account called work in process or work in progress.
Phase costing takes accounting to the next level. Phase accounting (costing and accounting are interchangeable at this level of detail) can only be used with job costing. It is designed to break a job down into distinct functions (stages) for analysis. It is a tool to identify discrepancies from estimates.
Operating profit margin refers to the value earned as a percentage of net sales. The operating profit is often referred to as earnings before interest, taxes, depreciation and amortization, (EBITDA). This is a misleading reference as operating profit is actually defined differently by industry sector. EBITDA is used primarily in valuing businesses.
Within the group of activity ratios, the total assets turnover rate is the broadest in scope. Similar to other activity ratios, it utilizes net sales as the numerator. However the denominator doesn’t focus in on a single balance sheet asset group like the working capital turnover or fixed assets turnover rates, it includes all assets.
Basis is a business term used to identify the value of an individual or entity’s investment in an entrepreneurial endeavor. It is customarily linked to taxation as this term is used by the Internal Revenue Code to determine gain or loss. To further compound its meaning ‘basis’ is sometimes substituted for the term ‘equity’.