Not all certified public accountants (CPAs) are the same when it comes to their services for the construction industry. There are a lot of construction business owners that don’t realize, the Internal Revenue Service (IRS) has its own code section for accounting for a construction company. A point oftentimes overlooked is the financial statements that a business owner doesn’t understand because of the complex requirements the IRS requires for construction accounting. The truth is, a lack of knowledge can do more harm than good.
Accounting on a grand scale requires the understanding of working capital, bonding capacities, miscalculated bank statements, improper indirect cost allocation, and payroll services. These inquiries can cost a business more money and lost opportunities. Below are seven reasons for utilizing a CPA that can increase revenues and how they specialize in construction accounting.
Revenues are calculated correctly by using the “percentage of completion method” that is mandated as an acceptable accounting principle by the IRS. Financial business statements will include all supplementary information and required contract schedules. Income statements and balance sheets will appropriately tie to the contract schedules. For the reason, financial business statements have to show the work in process and completed job revenue that equals the total contract revenue for the face value of the income statement. The same principals apply to costs as well.
Correct classifications and terminology are used with all financial business statements and they are unique to the construction industry. For instance, statements like estimated earnings, billings in excess of cost, and estimated earnings that are in excess of billings. Lost revenues due to uncompleted contracts that are recognized as being full at the time a determination is made for a loss on a job. What this means is, the financial damage is dealt with in a swift manner and not drug out over the span of the contract; furthermore, it prevents damage to your financial ratios in future contract periods. Financial business statements like retentions receivable, backlog, contract claims, profit/loss, and contract billing status are included disclosures provided by the CPA. There are a lot of different tax accounting methods that are available to the contractor and appropriate accounting methods that are used for tax purposes to match the income stream for the business.
How to Evaluate a CPA for Your Business
A qualified construction-based CPA firm will have a specialized team of highly-trained individuals who specialize in the construction industry. They should be led by a shareholder or partner with professionals who areCCIFP certified. The CPA firm should also be a member of industry trade organizations like the Associated General Contractors (AGC), Associated Builders and Contractors (ABC), and other respected organizations in this sector. Once you make your decision on a CPA for your construction business, you will see a dramatic difference in the quality of financial statements and you will be sailing the waves to a more profitable business.…