Construction accounting glossary.

The terms12

Backlog

The total value of signed work you have not yet done. It looks forward at revenue and, combined with your WIP schedule, a key input into cash-flow forecasting and bonding conversations. We forecast against backlog in CFO advisory.

Bonding capacity

The maximum amount of bonded work a surety will back you for, based largely on your financial statements and working capital. Clean, WIP-supported financials directly increase how much work you can take on. We build bonding capacity through CFO advisory.

Certified payroll

A weekly payroll report needed on many public and prevailing-wage jobs, showing each worker’s hours, classification, and pay rate to prove compliance with wage laws. Getting it wrong can stall payment or trigger penalties. See our certified payroll service.

Change order

A documented change to a job’s scope, cost, or schedule. Change orders that you do but never formally bill are one of the most common ways contractors give away margin. We track change orders in job costing.

Cost-to-complete

An estimate of the remaining cost to finish a job. It drives the percentage-of-completion calculation and is where optimistic estimating quietly turns a job from profitable to losing on paper. Part of our job costing work.

Job costing

Assigning every cost and every dollar of revenue to a specific job rather than tracking the company as a whole. It is the only way to see which jobs make money and which lose it, before they close instead of months after. See our construction job costing service.

Overbilling

Billing more than the work completed to date. It makes a cash cushion, and that cushion can hide a profit problem. The money is a liability. You collected the revenue, but you have not earned it. Flagged on the WIP schedule. We flag this in job costing.

Percentage of completion

A method that recognizes revenue on a job in proportion to the costs incurred against the total estimated cost. A job spends 60 percent of its expected costs. You then count the job as 60 percent complete. You calculate earned revenue from that percentage, not from the billings. See our job costing service.

Prevailing wage

A legally mandated minimum wage and benefit rate for workers on public construction projects, set by government for each trade and area. Bidding public work at your normal wage instead of the prevailing rate is a common and costly mistake. We handle prevailing-wage payroll.

Retainage

A percentage, commonly 5 to 10 percent, that a client holds back on each payment until the job is complete. It is your money, but it can sit uncollected for months and is easy to forget is owed to you. We track retainage in construction bookkeeping.

Underbilling

Work you have done but not yet billed. It is often a hidden drain on cash and a sign of billing that has fallen behind production. Also flagged on the WIP schedule. We catch this in job costing.

WIP schedule

A work-in-progress schedule brings three numbers together for each active job. The cost you have spent. The amount you have billed. The cost to complete. It shows the profit now, and whether you are over or under billed. It is the single most important report most contractors lack, and sureties need it for bonding. Try the free WIP calculator or see how we build WIP schedules.