Construction In Progress and Completed Contract Schedules – Are You Using Them?

With the year-end period over, most business owners are thinking about getting their taxes and financial statements completed. It’s time to gather your documents, make sure the books are closed properly and think about putting together the dreaded construction in progress (CIP) and completed contract schedules.

You can pat yourself on the back if you keep these schedules up-to-date regularly or at least quarterly. Most contractors think of them as awful, time-consuming documents that their accountants make them prepare each year. Well, I am here to tell you that in most cases, the time it takes to create them is time well spent.

A lot of valuable information about your business is neatly organized into two reports. Let’s start with the obvious: the first few columns on the construction in progress show in detail, and in total, the estimated revenue, job costs and gross profit for each job that has been started but not completed. In the next few columns, you can see the costs incurred on the job to date as well as the revenue and gross profit earned, and last but not least: are you overbilled or underbilled? As a business management tool, this is important – you always want to be overbilled. Many times underbillings are disguised lost profit. Anytime you see underbillings on your CIP, you should closely investigate, focusing on your estimated job costs and comparing those to the actual costs incurred thus far. Underbillings is where your job cost overruns like to hide.

So, what is useful about the completed contract schedule? What can I do about jobs that are already finished?
First, it is a bonding company’s favorite page of the financial statement. Think of it as a company report card. This schedule shows how good (or bad) you are at estimating. The first few columns tell the user how well you ultimately fared from each job. The middle part of the schedule shows the user how you thought you were going to do on a job prior to the current period. In the last three columns, you see the accuracy of your estimates.

Because construction in progress accounting is based on your estimates, in the year a job closes, you must recognize the differences that came up related to any faulty estimating. Ideally each of the three sets of columns will show stable profit recognition with consistent profit margins. If you start seeing large negative numbers in the column labeled “current year gross profit,” it’s a sign that you overestimated your profit in prior periods and will have to make up for it by showing a loss on that job currently.

Reviewing both the construction in progress and competed contract schedules regularly provides you with so much valuable information about your business that you can’t afford not to use them.

About the Author: Terri Richards (pictured) is an accounting services manager at Kaufman, Rossin’s Boca Raton, Fla. office, and a QuickBooks ProAdvisor. Kaufman Rossin offers QuickBooks training, accounting and consulting services for a variety of industries, including construction. She can be reached at trichards@kaufmanrossin.com .

Read about this construction article at construction today.

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