Chapter 2: Construction Accounting Systems
Learning Objectives
At the completion of this chapter the student should be able to:
• Explain the difference between cost reporting and cost control and identify the
characteristics of an accounting system that is used for cost control.
• Explain how percentage of completion accounting is different from cash or accrual.
• Explain the relationships that must be maintained between the balance sheet, income
statement, the job cost ledger, and the equipment ledger.
Instructional Hints
• Help the students understand that even though most of them will never be accountants for
a construction company, they may become owners or general managers of construction
Activities
• Bring in sample financial statements from construction companies. Compare and contrast
the financial statements to each other and those in the book. Discuss why there are
differences in the accounting systems. Explain that the differences allow the companies to
Instruction Resources
• The figures and tables from this chapter in electronic format and PowerPoint slides can be
found at the instructor’s website.
Solutions to the Textbook Problems
1. Processes the cash receipts and disbursements; collects and reports the data needed to prepare
2. Cost reporting is where the accounting system provides management with the accounting
data after the opportunity has passed for management to respond to and correct the problems
3. Strong job cost and equipment tracking system, utilizes the principal of management by
4. General ledger consists of all of the accounts necessary to track the financial data needed to
5. The chart of accounts contains all the accounts that comprise the general ledger—the balance
6. Under the cash method of accounting, revenue is recognized when the payment from the
owner is received and expenses are recognized when bills are paid.
Under the accrual method, revenues—except retention—are recognized when the company
7. There are three relationships that must be maintained:
On the balance sheet the sum of the asset accounts must equal the sum of the liability and the
8. There are two relationships that must be maintained:
If revenue is recorded on the job cost ledger, the total of the revenue on the job cost ledger
9. There are two relationships that must be maintained:
The total of the costs allocated to jobs on the equipment ledger must be equal to the
11. There is no set answer for this problem.
12. There is no set answer for this problem.