World Library  
Flag as Inappropriate
Email this Article

Construction accounting

Article Id: WHEBN0002908664
Reproduction Date:

Title: Construction accounting  
Author: World Heritage Encyclopedia
Language: English
Subject: Index of accounting articles, Accounting software, Management accounting
Collection: Management Accounting
Publisher: World Heritage Encyclopedia

Construction accounting

Construction accounting is a form of project accounting applied to construction projects. See also production accounting. Construction accounting is a vitally necessary form of accounting, especially when multiple contracts come into play. The construction field uses many terms not used in other forms of accounting, such as "draw" and progress billing. Construction accounting may also need to account for vehicles and equipment, which may or may not be owned by the company as a fixed asset. Construction accounting requires invoicing and vendor payment, more or less as to the amount of business done.

In the United States, the authoritative literature on Construction accounting is AICPA Statement of Position SOP 81-1 (SOP 81-1).

Construction Costs

These are all cost related to construction process, right from materials, labor costs, consultancy and all management expenses. Construction accounting involves charging construction costs to the applicable contract. Costs fall into three categories. Direct costs are labor, material, and subcontracting costs,land.[1] Indirect costs include indirect labor, supervision, tools, equipment costs, supplies, insurance, and support costs.[2] Selling, general and administrative costs, are generally excluded from contract costs.[3]

Revenue Recognition

Construction accounting requires unique revenue recognition rules for contracts in progress.

In most cases, revenue is recognized using the Percentage of Completion Method. Under this method, revenue is recognized using an estimate for the overall anticipated profit for a particular contract multiplied by the estimated percent complete of that contract.[4] This involves the inherent risk of relying upon estimates.[5]

Under SOP 81-1, revenue is also allowed to be computed using the Completed Contract Method.[6] Under this method, contract revenues and costs are not recognized until the contract is substantially complete. However, this method is not allowable if the results are significantly different than results using the Percentage of Completion Method.[7] The Completed Contract Method is allowed in circumstances in which reasonable estimates cannot be determined.[8] However, these types of circumstances can be construed as a lack of internal control.


  1. ^ AICPA SOP 81-1 Para. 72 a.
  2. ^ AICPA SOP 81-1 Para. 72 b.
  3. ^ AICPA SOP 81-1 Para. 72 c,d.
  4. ^ AICPA SOP 81-1 Para. 22-25
  5. ^ SOP 81-1 Para. 26-29
  6. ^ SOP 81-1 Para. 30
  7. ^ SOP 81-1 Para. 31
  8. ^ SOP 81-1 Para. 32

This article was sourced from Creative Commons Attribution-ShareAlike License; additional terms may apply. World Heritage Encyclopedia content is assembled from numerous content providers, Open Access Publishing, and in compliance with The Fair Access to Science and Technology Research Act (FASTR), Wikimedia Foundation, Inc., Public Library of Science, The Encyclopedia of Life, Open Book Publishers (OBP), PubMed, U.S. National Library of Medicine, National Center for Biotechnology Information, U.S. National Library of Medicine, National Institutes of Health (NIH), U.S. Department of Health & Human Services, and, which sources content from all federal, state, local, tribal, and territorial government publication portals (.gov, .mil, .edu). Funding for and content contributors is made possible from the U.S. Congress, E-Government Act of 2002.
Crowd sourced content that is contributed to World Heritage Encyclopedia is peer reviewed and edited by our editorial staff to ensure quality scholarly research articles.
By using this site, you agree to the Terms of Use and Privacy Policy. World Heritage Encyclopedia™ is a registered trademark of the World Public Library Association, a non-profit organization.

Copyright © World Library Foundation. All rights reserved. eBooks from World eBook Library are sponsored by the World Library Foundation,
a 501c(4) Member's Support Non-Profit Organization, and is NOT affiliated with any governmental agency or department.