Bookkeeping & Financing - BGA/CM

Bookkeeping

Recording financial data

Accounting

Interpret financial data/prepare financial statements

Assets =

Liabilities + Equity

Liabilities =

Assets - Equity

Equity =

Assets - Liabilities

Debits refer to the _____ side of an account

Left

Credits refer to the ________ side of an account

Right

______ are on the left side of the equation, there for have ____ balances

Assets; Debit

_________ are on the right side, and therefore have ________ balances

Liabilities & Equity; Credit

Asset Accounts

Debit Balances

Liability Accounts

Credit Balances

Equity Accounts

Credit Balances

The act of increasing the left side of an account is called ________

Debiting

The act of increasing the right side of an account is called _________

Crediting

What is the impact of a Debit on an Asset Account?

The account balance increases

What is the impact of a Debit on a Liability Account?

The account balance decreases

Start-Up Capital

The amount of money needed to get the business underway and should be enough to cover expenses for 3 months - 1 year, depending on the contracting business

What is the amount owed to a supplier who has given you credit called?

Accounts Payable

Two ways equity balance can change:

Investments or withdrawals by the owner; earnings or loses by the company

Revenues

Money the company is paid or expects to get paid for goods or services

Expenses

Amount a company spends to provide goods or services

Earnings =

Revenues - Expenses

Revenues are _______ when ownership of the goods transfers to the customer or when services are completed.

Recorded

What Asset account is a “Promise to Pay” by a customer for goods or services received?

Accounts Receivable

What method of accounting recognizes revenues and expenses when they are earned or incurred, not when they are received or paid?

Accrual Method

The categories under Assets, Liabilities, Equity, Revenues, and Expenses are called ______

Accounts

What is the goal of a well-designed bookkeeping system?

Reducing your costs while achieving maximum efficiency

What Records do you need?

Sales, receivables, checks, payroll, bank accounts, cash on hand, equipment, overhead expenses, estimating & job, accruals, chart of accounts

What is the most common modern bookkeeping method called?

Double-entry bookkeeping

Another way to say “unearned income” is

Deferred income

Retainage

Amount withheld from the contractor payment (typically a percentage). This is a guarantee against unforeseen problems and an incentive for a timely completion.

Cash Method - Accounting Method

Income recognized as cash is ACTUALLY received.

Accrual Basis - Accounting Method

Income includes all amounts the contractor is ENTITLED to receive when the amount can be determined and all events have occurred to fix the right to receive the income.

Percentage of Completion - Accounting Method

Income is recognized proportionally as work is completed.

Completed Contract Method - Accounting Method

Income is NOT recognized until the job is COMPLETED

Accrued Expenses

Expenses incurred but not yet paid

Accrued Revenues

Revenue earned but not yet received

The accrual system is

The most accurate because it shows what’s really happening in your operation in terms of profit and loss.

Unearned income

Payments contractors may receive for work not yet performed, or only partially completed. The portion of income over the degree of completion is called ___________

In the Percentage of Completion method, any income that is not earned…

should not be recorded as income until the work is finished

In the Percentage of Completion method, when you receive cash for work that’s only partially complete, you must

separate out the unearned part of income and assign it to a special account

Since retainage is earned but not yet received, it is considered what type of income?

Accrued Income

Percentage of Completion (POC) Formula:

Cost to Date (CTD) / Total Cost (CTD + Costs of Completion (CTC))

Earned Income Formula:

Percentage of Completion (POC) x Contract Value (CV)

Earned Income

The amount of revenue you have earned or accrued on a project based upon the percentage of completion

Why is the following good check writing and recording procedures important?

Helps control your costs and expenses effectively.

Why you should write out complete names and descriptions for each check and carry a balance of payments by account:

Support summary entries recorded elsewhere; aid you in balancing your bank account; give you detail needed for adjustments; provide records for analysis

The check stub and the canceled checks are supported by what type of documents?

Source documents

Basic information to record when writing a check:

check number; date; who was paid; what the payment was for; amount

How often should you prepare the check register?

At least once a month

What is one major function of a check register?

It identifies math errors

For check registers, the total column is checked by adding distribution totals across the page. This is called ___________.

Crossfooting

Business deductions for checks made to _______ are questionable and harder to prove?

Cash