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How to best show costs
There are four different ways to track costs and to match revenue, costs, and profit, particularly when you are in the construction business:cash, accrual, completed contract, and percentage of completion. Cash method of showing costs
The accrual method of showing costs Let's say that you run a small construction company.When you are working out how to show costs for time spent, for materials used, or for cost-plus contracts, then you will want to look carefully into using the accrual method.When you use the accrual method for showing costs, you will recognize and note your income whenever you prepare an invoice for any services or products rendered.Then when you receive an invoice, you will record any expenses and costs.This is a much more timely way of accounting and budgeting than the cash method.However, it is not particularly accurate if you are a custom builder, so you will want to look into other methods to accompany the accrual method of showing costs and tracking revenue. The completed contract method of tracking costs When you use the completed contract method, if your small businesses uses contracts when negotiating the delivery of products and services, you will not record any revenue or any expenses until the contract is complete.In terms of taxes, you will be able to defer paying any taxes on your profits until you finish the job or complete your services.You will consider any costs incurred during construction as assets.Any customer payments are tracked as liabilities. The percentage-of-completion method of tracking costs When you use the percentage-of-completion method, you will be working with your contracts and noting gross profit, cost, and revenue throughout your contract based on periodic measures of progress.In order to use this particular method of tracking costs, you must come up with an accurate estimation of your contract, and that your job cost system will be easy to compare to your estimate. |
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