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The Construction Glossary: Key Accounting Terms You Need to Know

Updated: Jun 26

Understanding construction accounting can seem tough. Don't fret, though; we are here to assist you.


We have put together a straightforward glossary of vital construction accounting terms for you to learn.


Plus, to make these terms easily accessible for you, we have collaborated with the Construction Financial Management Association (CFMA). They are offering a glossary that you can download and keep handy.


So, be sure to go through this guide till the end to grab this useful tool!


Table of Content:

accounting terms, accounting glossary, accounting key words

Understanding the Accounting Terms

Accounting in construction can seem packed with intimidating terms. Words like "amortization," "depreciation," "cash flow," "equity," and "liabilities" are key ones that shape your financial story.


At CCA, we simplify these terms to help you understand them better and enable you to make well-informed decisions.


Key Construction Accounting Concepts to Keep in Mind

Here are some vital accounting concepts related to construction:

  • Overhead Costs:

These are expenses that are ongoing and not directly linked to a single project but are necessary for everyday operations. Rent, utilities, insurance, maintenance, and staff salaries are examples.

  • Direct Costs:

These are costs directly associated with a specific project and are important for calculating job costs and profitability.

  • Indirect Costs:

These are a type of overhead cost that is related to a particular product, service, or project but can't be directly allocated to it. Supervision costs, quality control, and depreciation of shared assets are examples.


  • Accounts Payable (A/P):

Accounts payable (A/P) refers to the amounts owed by a construction company for expenses incurred. These amounts are recorded using the accrual accounting method. They are held in a separate general ledger account.

  • Accounts Receivable (A/R):

Accounts receivable (A/R) represent the amounts earned by a construction company and expected to be collected. It follows the accrual bookkeeping method.

construction terms
  • Double-Entry Accounting:

Double-entry accounting is a bookkeeping method that records every transaction in two offsetting general ledger accounts. Each transaction has both a debit and a credit to ensure accuracy in construction bookkeeping.


At CCA, we are with you all the way. Our experts can explain these terms and help you apply them to your business.


Understanding Key Reports in Construction Accounting

Learning key accounting words is important for understanding financial reports. Here's what these terms mean in simpler words:

  • Balance Sheet: This report shows a company's financial health at a specific time. It lists the company's assets, liabilities, and equity. In short, it shows what a company owns, owes, and the ownership value (Assets = Liabilities + Equity).

  • Income Statement: Also known as the profit and loss statement, it lists a company's income, costs, and expenses during a period. By subtracting costs and expenses from revenues, it shows the company's net profit or loss.

  • Cash Flow Statement: This report shows how cash comes in and goes out in a company. It tracks changes in balance sheet items and income, showing where the money comes from and how it's spent. It includes operating activities, investing activities, and financing activities.

Get Your Construction Accounting Glossary: Download Now

Don't overlook the comprehensive construction accounting glossary that CFMA offers. This resource will serve as a handy reference in your financial decision-making journey. It's an invaluable tool for every construction business owner.


Download the Construction Accounting Glossary here!

Glossary
.docx
Download DOCX • 52KB

How Can Construction Bookkeeping Services Benefit You?

  • Accurate financial reporting: These services make sure your financial data is accurate and up-to-date.

  • Construction-specific accounting: They understand the special parts of construction finance. This includes job costs, long-term contracts, and various other costs.

  • Tax preparation services: These services make sure you follow tax rules, use tax benefits, and avoid fines.

  • Expert consultation: They give advice on how to handle your money, increase profits, and plan for growth.

In short, these services help you deal with tricky accounting problems. This gives you more time to work on growing your business.


In Conclusion

Understanding construction and accounting terms is a key step in managing your business's finances. But don't worry; you're not in this alone. With a dedicated bookkeeping service, you can confidently comprehend and manage these complexities.


At CCA, you gain more than a bookkeeping service; you gain a partner. We handle your accounting while you focus on building your business. With CCA, accounting is no longer a challenge but a tool to drive your business's growth.


Ready to simplify your financial management? Reach out to CCA today, and let's build a financially strong and profitable construction business together.


accounting terms to know

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