February 27, 2013February 27, 2013Presented by Rob SchererPresented by Rob Scherer

& Olivia Roemer& Olivia Roemer

Job Costing and AccountingJob Costing and Accounting

Workshop #2Workshop #2

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January 30, 2013 - Understanding Your Construction Financial Statements

February 27, 2013 - Job Costing & Accounting

March 27, 2013 – Banking & Bonding Management

April 24, 2013 – Tracking your Field Production

May 29, 2013 – Best Practices in Construction Accounting Software

June 26, 2013 – Construction Financial Management Boot Camp

Purpose: Purpose:

The primary purpose of accounting is to provide a The primary purpose of accounting is to provide a

system for tracking the financial activities of a business system for tracking the financial activities of a business

and to provide management with meaningful and and to provide management with meaningful and

relevant information to make business decisions. The relevant information to make business decisions. The

secondary purpose is to provide financial information to secondary purpose is to provide financial information to

third parties regarding the financial position of the third parties regarding the financial position of the

business.business.

Accounting Cycle Accounting Cycle

The accounting cycle is usually twelve monthly The accounting cycle is usually twelve monthly

periods within a year. A Corporation can choose a periods within a year. A Corporation can choose a

calendar year or a fiscal year, however an individual, calendar year or a fiscal year, however an individual,

partnership, or S Corporation typically must use a partnership, or S Corporation typically must use a

calendar year.calendar year.

Keys to Accounting: Keys to Accounting: There are a few keys to accounting that can help to There are a few keys to accounting that can help to provide an accurate and relevant accounting system provide an accurate and relevant accounting system

such as:such as:

KISS (Keep it Simple Stupid!)KISS (Keep it Simple Stupid!)

Cash Is KingCash Is King

Billings are MoneyBillings are Money

Accounts Payable ProcessAccounts Payable Process

Payroll ProcessingPayroll Processing

Reconcile and ReviewReconcile and Review

KISS (Keep it Simple Stupid!)KISS (Keep it Simple Stupid!):: There is no need to overcomplicate the process. If There is no need to overcomplicate the process. If you don’t understand how it’s working, you won’t you don’t understand how it’s working, you won’t understand what it’s telling you. Keeping this in mind understand what it’s telling you. Keeping this in mind may also keep the cost to produce the information may also keep the cost to produce the information much more manageable. An inexpensive system much more manageable. An inexpensive system such as QuickBooks may accomplish the objective such as QuickBooks may accomplish the objective instead of a more powerful and expensive program.instead of a more powerful and expensive program.

Cash is KingCash is King Accounting for the money received and the money Accounting for the money received and the money spent will accomplish the major portion of the spent will accomplish the major portion of the process. Reconciling the bank account activity to the process. Reconciling the bank account activity to the accounting records on a monthly basis will help to accounting records on a monthly basis will help to ensure that all cash activity has been captured.ensure that all cash activity has been captured.

Billings are Money:Billings are Money: Timely and accurate billing is the key step to creating Timely and accurate billing is the key step to creating

cash. Billing cash. Billing should be done on a regular basis and the should be done on a regular basis and the collection of those billings should be closely monitored.collection of those billings should be closely monitored.

Accounts Payable Process:Accounts Payable Process: Nobody likes to pay out money, however the worst part Nobody likes to pay out money, however the worst part is paying bills you didn’t think you owed (like taxes). is paying bills you didn’t think you owed (like taxes). Payables that are not processed timely and accurately Payables that are not processed timely and accurately will result in: billings being processed late; planning and will result in: billings being processed late; planning and budgeting will be useless; and unwanted surprises that budgeting will be useless; and unwanted surprises that persist.persist.

Payroll Processing:Payroll Processing:

Reconcile and Review:Reconcile and Review: Cash, investments, accounts receivable, accounts Cash, investments, accounts receivable, accounts payable, credit card liabilities, and other significant payable, credit card liabilities, and other significant balance sheet accounts should be reconciled to a third balance sheet accounts should be reconciled to a third party statement on a monthly basis. The activity in these party statement on a monthly basis. The activity in these accounts and the overall financial statements should be accounts and the overall financial statements should be reviewed on a monthly basis for reasonableness and reviewed on a monthly basis for reasonableness and used as a basis for planning and for making business used as a basis for planning and for making business decisions. decisions.

  

Users Of Financial Statements:Users Of Financial Statements: Besides management, there are other people or Besides management, there are other people or

organizations that request and/or review the financial organizations that request and/or review the financial statement of the company. A few examples are as statement of the company. A few examples are as

follows:follows:

• BankersBankers

•Surety CompanySurety Company

•ShareholdersShareholders

•Tax AgenciesTax Agencies

Purpose: Purpose:

The purpose of job costing is to provide The purpose of job costing is to provide

accounting of contract performance and to accounting of contract performance and to

assist in managing the job, as well as to assist in managing the job, as well as to

provide management with relevant information provide management with relevant information

regarding contract activity in order to make regarding contract activity in order to make

business decisions .business decisions .

Contract Cycle: Contract Cycle:

Contract cycles can vary significantly from Contract cycles can vary significantly from

contract to contract as well as from the type of contract to contract as well as from the type of

work performed. Shorter contract periods may work performed. Shorter contract periods may

make the job costing process a little more make the job costing process a little more

difficult, but no less important.difficult, but no less important.

Keys to Job Costing: Keys to Job Costing: The “keys to accounting” previously discussed also The “keys to accounting” previously discussed also

applies here, however, there are a few other issues to applies here, however, there are a few other issues to consider such as:consider such as:

Identify Key Cost ComponentsIdentify Key Cost Components

Tracking Cost ComponentsTracking Cost Components

Performance MeasurementsPerformance Measurements

Monitor ResultsMonitor Results

Make AdjustmentsMake Adjustments

Identify Key Cost Components:Identify Key Cost Components:

Labor, materials, equipment, subcontractor costs are Labor, materials, equipment, subcontractor costs are the typical components of job costs. Identify any other the typical components of job costs. Identify any other

significant costs that relate to your contract significant costs that relate to your contract performance. These would typically be the same costs performance. These would typically be the same costs

you estimate in the bid process.you estimate in the bid process.  

Tracking Cost Components:Tracking Cost Components: Determine a method to track the costs by job keeping in Determine a method to track the costs by job keeping in

mind the keys to accounting discussed above. mind the keys to accounting discussed above. Consideration should be given to the accounting system Consideration should be given to the accounting system

in place and its ability to generate and/or track cost flows. in place and its ability to generate and/or track cost flows. Include bid and revised estimates within the job cost Include bid and revised estimates within the job cost

system.system.

Performance Measurements:Performance Measurements: When designing the system, consideration should be When designing the system, consideration should be

given to including performance criteria within the job cost given to including performance criteria within the job cost system. Items such as pounds/yards, etc.; per man system. Items such as pounds/yards, etc.; per man

hours; material per square foot, etc. These performance hours; material per square foot, etc. These performance measurements may provide you with additional measurements may provide you with additional

information as to job performance outside the typical information as to job performance outside the typical cost information. cost information.

Monitor Results:Monitor Results: Review the results on the job to assist in evaluating Review the results on the job to assist in evaluating

performance, as well as assist in estimating future bids performance, as well as assist in estimating future bids and making business decisions.and making business decisions.

Make Adjustments:Make Adjustments: As the business and/or the jobs change, the job cost As the business and/or the jobs change, the job cost

system may need to be modified to meet the new system may need to be modified to meet the new changes. If you’re monitoring the results on a regular changes. If you’re monitoring the results on a regular basis, the adjustments needed should come to lightbasis, the adjustments needed should come to light

Accounting & Job Costing-Accounting & Job Costing-Rule of Thumb Strategy:Rule of Thumb Strategy:

1.1. Keep the accounting and job cost process simple.Keep the accounting and job cost process simple.

2.2. The information produced should be relevant and The information produced should be relevant and understandable.  understandable.  

3.3. Review and use the information to make individuals Review and use the information to make individuals accountable and to make business decision.accountable and to make business decision.

4.4. Accounting and job costing are not the answers but Accounting and job costing are not the answers but they can assist in getting you the answers.they can assist in getting you the answers.

January 30, 2013 - Understanding Your Construction Financial Statements

February 27, 2013 - Job Costing & Accounting

March 27, 2013 – Banking & Bonding Management

April 24, 2013 – Tracking your Field Production

May 29, 2013 – Best Practices in Construction Accounting Software

June 26, 2013 – Construction Financial Management Boot Camp