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Construction Accounting #368126

Course Overview

Credit

Amount

CPA

Course Author: Steven M. Bragg, CPA Field of Study (CPA): Accounting

Course Description

Course publication/revision date: This course was updated on 4/10/2026.

This course addresses every aspect of the accounting for a construction business. The intent is to not only explain accounting concepts, but also provide examples and show how an accounting system can be constructed and operated. The course pays particular attention to unique aspects of construction accounting that are not encountered in other industries, including the job cost ledger, change orders, back charges, percentage of completion calculations, and the treatment of anticipated losses on contracts. In short, Construction Accounting is the go-to source for information about the accounting for a construction firm.

Table of Contents

Preface|xii

Chapter 1 Overview of the Construction Industry1

Learning Objectives	1
Introduction	1
Nature of the Construction Contractor	2
Bonding Requirements	3
The Bidding and Construction Process	3
Types of Construction Contracts	4
Fixed Fee Contract	4
Cost Plus Contract	5
Time-and-Materials Contract	6
Unit-Price Contract	6
Construction Contract Modifiers	6
Contract Changes	7
Construction Industry Financing Issues	7
Construction Industry Failure Issues	8
Summary	9
Review Questions	10

Chapter 2 The Construction Accounting System11

Learning Objectives	11
Introduction	11
Nature of a Construction Accounting System	11
The Chart of Accounts	12
The General Ledger	18
The Work Breakdown Structure	19
The Job Cost Ledger	21
Job Cost Ledger Posting	28
The Equipment Ledger	28
Summary	29
Review Questions	30

Chapter 3 Construction-Specific Accounting31

Learning Objectives	31
Introduction	31
Accounting Standard-Setting Organizations	31
Types of Accounting Methodologies	32
Cash Method of Accounting	32
Accrual Method of Accounting	32
Accounting for Revenue from Contracts with Customers	32
Step 1: Identify the Contract with a Customer	33
Step 2: Identify the Performance Obligations in the Contract	34
Step 3: Determine the Transaction Price	35
Step 4: Allocate Prices to Obligations	38
Step 5: Revenue Recognition When Performance Obligations are Satisfied	39
Percentage of Completion Method	42
The Work-in-Progress Schedule	43
Completed Contract Method	44
Unpriced Change Orders	45
Contract Claims	45
Contract Back Charges	46
Contract Costs	46
Costs to Obtain a Contract	46
Costs to Fulfill a Contract	47
Amortization of Costs	47
Impairment of Costs	48
Costs Assigned to Jobs	48
Labor Burden	49
Equipment Cost Allocation	49
Summary	52
Review Questions	53

Chapter 4 Construction Transactions54

Learning Objectives	54
Introduction	54
Double Entry Accounting	54
Journal Entries	55
General Entries	56
Office Rent Expense	56
Other General Expenses	58
Inventory Purchases	59
Supplier Invoice Payments	59
Client Cash Receipts	60
Loan Acquisition	61
Loan Payments	62
Sale of Stock	62
Entries Related to the Percentage of Completion	62
Anticipated Losses on Contracts	63
Job Costing Entries	63
Invoice Charged to Job	63
Labor Charged to a Job	65
Inventory Charged to a Job	65
Client Billings	65
Equipment Entries	66
Equipment Rentals	66
Equipment Repairs	66
Equipment Charged to a Job	66
Summary	67
Review Questions	68

Chapter 5 Construction Financial Statements69

Learning Objectives	69
Introduction	69
The Balance Sheet	69
The Income Statement	71
The Statement of Cash Flows	72
Financial Statement Disclosures	75
Reporting Options	76
Summary	77
Review Questions	78

Chapter 6 Fixed Asset Accounting79

Learning Objectives	79
Introduction	79
What are Fixed Assets?	79
Fixed Asset Classifications	80
Accounting for Fixed Assets	81
The Capitalization Limit	82
The Base Unit	82
The Initial Measurement of a Fixed Asset	83
The Purpose of Depreciation	84
Depreciation Concepts	84
Accelerated Depreciation	85
Sum-of-the-Years' Digits Method	86
Double-Declining Balance Method	87
Straight-Line Method	87
Units of Activity Method	88
MACRS Depreciation	89
The Depreciation of Land	90
The Depreciation of Land Improvements	90
Depreciation Accounting Entries	91
Accumulated Depreciation	92
Asset Derecognition	93
Abandoned and Idle Assets	94
Asset Disposal Accounting	95
Summary	96
Review Questions	97

Chapter 7 Payables Accounting98

Learning Objectives	98
Introduction	98
Accounting for Accounts Payable	98
Early Payment Discounts	100
The Vendor Master File	101
Vendor Master File Usage	102
Supplier Naming Conventions	102
The Payables Filing System	103
Government Reporting	104
The Form 1099-MISC	104
The Form 1099-NEC	107
The Form 1096 Transmittal Return	108
Treatment of Incorrect Filings	109
The Form W-9	110
Summary	111
Review Questions	112

Chapter 8 Debt Accounting113

Learning Objectives	113
Introduction	113
Basic Debt Accounting	113
The Amortization Schedule	115
Reconciling the Debt Account	115
Participating Mortgage Loans	116
Summary	117
Review Questions	118

Chapter 9 Contingencies119

Learning Objectives	119
Introduction	119
Loss Contingencies	119
Gain Contingencies	120
Contingency Disclosures	120
Summary	121
Review Questions	122

Chapter 10 Lease Accounting123

Learning Objectives	123
Introduction	123
The Nature of a Lease	123
Lease Types	123
Initial Lease Measurement	124
Short-Term Leases	124
Finance Leases	125
Operating Leases	126
Derecognition	127
Summary	127
Review Questions	128

Chapter 11 Payroll Accounting129

Learning Objectives	129
Introduction	129
Employee Time Tracking	129
Gross Pay Calculations	130
Hourly Rate Plan	130
Overtime	131
Types of Payroll Taxes	132
Social Security Tax	132
Medicare Tax	133
Unemployment Taxes	133
Income Tax Withholdings	134
Benefits and Other Deductions	137
Net Pay	138
Remitting Payroll Taxes	138
Types of Tax Deposit Schedules	138
Monthly Deposit Schedule	139
Semiweekly Deposit Schedule	140
Federal Unemployment Deposit Schedule	141
Remittance Method	141
The Form 941 Quarterly Federal Tax Return	142
State Tax Remittances	142
Payments to Employees	143
The Payroll Register	144
Form W-2	145
Payroll Journal Entries	146
Types of Payroll Journal Entries	146
Primary Payroll Journal Entry	147
Accrued Wages	148
Manual Paycheck Entry	149
Employee Advances	150
Accrued Vacation Pay	150
Tax Deposits	151
Summary	152
Review Questions	153

Chapter 12 Investments in Construction Joint Ventures154

Learning Objectives	154
Introduction	154
The Equity Method	154
The Cost Method	156
Consolidations	156
Sales to a Joint Venture	158
Summary	158
Review Questions	159

Chapter 13 Construction Accounting Controls160

Learning Objectives	160
Introduction	160
Segregation of Duties	160
Asset Tracking	161
Access to Data	161
Controls for Estimates and Bids	161
Controls for Cost Plus Pricing Arrangements	162
Controls for Fixed Fee Pricing Arrangements	162
Subcontractor Controls	163
Materials Controls	164
Labor Controls	165
Equipment Controls	165
Job Closure Controls	166
Percentage of Completion Controls	166
Change Order Controls	167
Billing Controls	167
Budget Controls	168
Financing Controls	168
General and Administrative Controls	168
Construction Fraud	169
Summary	170
Review Questions	171

Chapter 14 Job Analysis172

Learning Objectives	172
Introduction	172
Projected Cost and Variance Analysis	172
Adjusting for the Timing of Billings	173
Earned Value Management	174
Schedule Performance Index	175
Cost Performance Index	176
Job Cost Sheet	176
Construction-in-Progress Report	177
Summary	179
Review Questions	180

Chapter 15 Business Structures181

Learning Objectives	181
Introduction	181
Sole Proprietorship	181
Partnership	182
Corporation	183
C Corporation	183
S Corporation	183
Limited Liability Company	184
Summary	184
Review Questions	185

Answers to Chapter Questions186

Glossary199

Index205

Course Details

Author: Steven M. Bragg, CPA

Steven Bragg, CPA, has been the chief financial officer or controller of four companies, as well as a consulting manager at Ernst & Young. He received a master’s degree in finance from Bentley College, an MBA from Babson College, and a Bachelor’s degree in Economics from the University of Maine. He has been a two-time president of the Colorado Mountain Club, and is an avid alpine skier, mountain biker, and certified master diver. Mr. Bragg resides in Centennial, Colorado. He has written more than 300 books and courses, including New Controller Guidebook, GAAP Guidebook, and Payroll Management.

Publication/Revision Date: 4/10/2026

Course Exam Questions (online): 55 (multiple-choice)

Program Delivery Method: NASBA QAS Self-Study

Available Formats of Course Text: PDF or PDF plus printed copy sent in the mail

Course Level, Prerequisites, and Advance Preparation Requirements

License	Course Level	Prerequisites	Advance Preparation Requirements
CPA	Overview	None	None

* This program is appropriate for professionals at all organizational levels.

Sponsor ID Numbers

National Registry of CPE Sponsors ID: 107615

State CPA Board Sponsor ID Numbers (where applicable)

Florida Division of Certified Public Accounting: 0004761

Hawaii Board of Public Accountancy: 14003

New York State Board for Public Accountancy: 002146

Ohio Accountancy Board: CPE .51 PSR

Pennsylvania State Board of Accountancy: PX178025

Texas State Board of Public Accountancy: 009349

Learning Objectives

As a result of studying the course material, you should be able to meet the objectives listed below:

Recognize the types of bonds that a contractor may be required to post.
Cite the different types of clauses that may be added to a construction contract.
Specify the various causes of contract claims.
Specify the types of financial difficulties to which the construction industry is subjected.
Identify the different types of ledgers used by a construction company.
Specify the components of a work breakdown structure.
Recognize the types of accounts most likely to be designated as control accounts by a contractor.
Recognize the linkage between contracts and revenue recognition.
State the criteria for the existence of a contract.
Specify the methods used to determine the price of a contract.
Cite the criteria used to identify contract fulfillment costs.
Recognize the different methods used to calculate the percentage of completion.
Identify the situations in which the completed contract method should be used.
Describe the circumstances under which the recovery of funds from a change order is probable.
Specify the proper accounting for pre-contract costs.
Describe the normal account balances for the various account types.
Recognize when the straight-line rent concept should be applied.
Recognize the uses to which the accounting equation is put.
Identify the linkage between the balance sheet and the income statement.
Identify the impact of a long operating cycle.
Cite the circumstances under which the useful life concept is employed.
Specify the significance of the mid-month convention.
Identify the depreciation calculations for all depreciation methods.
Recognize the accounting for the disposition of a fixed asset.
Specify the methods available for giving meaning to a supplier identification number.
Recognize the purpose of the different copies of the Form 1099-MISC.
Specify the purpose of the more important boxes listed on the Form 1099-MISC.
Recognize the reasons for loan balance differences in the records of the lender and borrower.
Cite the rule used for determining the amount of a loss contingency accrual.
Specify the proper disclosure for the different types of contingent losses.
Specify the uses for the lessee of a lease arrangement.
Recognize the lease rules related to short-term lease arrangements.
Describe the usage of the Form W-4.
Identify the calculation used for the hourly rate plan.
Specify how the wage bracket method is used.
Recognize the payment schedules for the different types of tax deposits.
Identify the tax calculation for the FUTA tax.
Recognize how the equity method is calculated.
Specify the IRS designation for a multi-year contract.
Recognize the circumstances under which the IRS allows the cash method to be used.
Recognize the circumstances under which the completed contract method is used to recognize revenue.
Identify the situations in which a change log can be most profitably used.
Recognize the controls that apply to fixed fee and cost plus contracts.
Cite the components of earned value management.
Describe the calculation of the cost performance index.
Specify the advantages and disadvantages of the various types of organizational structures, as well as the requirements for the formation of each one.