Best Format for the Construction Profit and Loss Statement

As a construction company owner, you need a profit and loss statement that conveys information in a format that will identify how much you are truly making as a profit. The best format for the construction profit and loss statement identifies contract revenues, direct costs, indirect costs and the overhead expenses. This format most closely matches the estimating style of most small construction companies.

QuickBooks in Construction Accounting – Transfer Work in Process to Cost of Goods Sold

QuickBooks does not have a seamless subrountine to transfer costs from construction in process control accout to the profit in loss statement’s cost of construction section. Therefore, the accountant has to export data to a spreadsheet and then sum the respective functional costs of materials, subcontractors, labor, land etc. and then make a general journal entry to complete the transfer. This article explains this process in detail.

Format of the Profit and Loss Statement for Service Related Businesses

Profit and Loss Statement for Service Related Businesses

Service related businesses require a different format than the traditional profit and loss statement AKA the income statement.  The traditional profit and loss focuses on sales of products and a corresponding cost of goods sold section to help the reader evaluate the gross margin.  But in service, the owner needs a profit and loss statement formatted to key in on overall productivity and costs of that productivity.

How to Calculate the Best Markup for a Construction Project

Markup for a Construction Project

Every construction project has costs beyond the direct costs and the contractor wants to earn a profit.  To cover these costs he must have an appropriate markup.  The contractor must give consideration to many variables and circumstances to calculate the best markup for a construction project.  To determine the best markup percentage on costs, the contractor should consider his indirect costs, overhead, taxes, and final profit desired. 

Completed Contract Method of Accounting in the Construction Industry

Completed Contract Method

The completed contract method of accounting recognizes revenue and the associated costs once the project is complete.  This is one of the two popular accounting methods used in the construction industry.  For residential contractors, the completed contract method may have a slight tax advantage by deferring revenue recognition but is generally not considered the best method of accounting in the construction industry. 

What is a Reasonable Profit in Construction?

Reasonable Profit in Construction

For any company, profit is based on the risk reward concept.  With construction, what should be the profit (reward) given the risk?  What is a reasonable expectation given the industry and the particular business? 

There is no single correct answer.  The construction industry is divided into several significant branches.  This article is focused on the residential contractor. 

From the new home builder to the re-modeler, a reasonable profit given the risk should be no less than 9%  AND this is net after a reasonable salary to the owner for his management role.  This is the take home or actual bottom line profit; the amount after taxes.  How do you derive such a figure?  How do you determine the markup on the construction project to end up with this profit? 

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