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CONSTRUCTION

ACCOUNTS
MANAGEMENT

PARAS KUKADIYA (140870106527)


NILAY DHORAJIA (140870106533)
NIKUNJ PIPALAVA (140870106547)
BHARGAV VIRANI (140870106559)
MILAN ZALAVADIYA (140870106560)
INTRODUCTION
 Certain construction project often takes several years to complete. Until the
project gets completed, various transactions are taking place at different
times which leads to many uncertainties.
 A construction engineer therefore should be aware of and able to handle day
to day accounting issues.
 Accounting can be defined as a system of
-> Recording
-> Collecting
-> Summarizing
-> Analyzing
-> Presenting
PRINCIPLES OF ACCOUNTING

 The nature of accounting is stated below :

ACCOUNTING
1. Is man made
2. Has evolved over a period of time
3. Is a systematic exercise
4. Is the language of business
5. Follow flexible approach
6. Communicates financial information for decision making
 Accounting is based on following assumptions :

1. Transactions is recorded from the viewpoint of the person for whom


the accounts ae maintained.
2. The establishment is going to exist forever.
3. Sum of credits is equal to sum of debits.
4. Cost and revenues are taken into account as and when they are
incurred and earned, rather than when they are paid or received. This
is known as principle of accruals.
5. Similar or identical items should be treated the same way in different
sets of account or in different accounting periods. This is known as
principle of consistency.
ACCOUNTING PROCESS

 For accounting process ‘Balance Sheet’ and ‘Profit and Loss Account’ are two
important financial document.
 Following steps are followed for preparing these documents
1. Initiation of transaction.
2. Keeping records of transaction in a chronological order.
3. Making adjustment entries.
4. Recording transactions in T-accounts or ledger.
5. Preparing initial trial balance.
6. Preparing profit and loss account and closing of T-accounts.
7. Preparing the balance sheet.
REVENUE RECOGNITION

 There are various methods by which construction contract revenue is


recognized
1. Cash Method
2. Straight Accrual Method
3. Completed Contract Method
4. Percentage of Completion Method
1) Cash Method
Revenue = payment received till date – costs paid till date.

2) Straight Accrual Method


Revenue = billed (invoice) to date – costs incurred to date.

3) Completed Contract Method


Revenue is recognized only when project is completed.

4) Percentage of completion method


Percentage completion method = cost incurred to date/(cost incurred to
date + estimated cost to complete)*100
LIMITATIONS OF ACCOUNTING

1. Only transactions with money value can be recorded in the normal


accounting procedure. Hence, generation or loss of goodwill cannot
be kept track of.
2. Records can be maintained only considering the original value.
Intermediate valuation depends on the personal judgement of an
accountant.
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