Reviewing Financial Record Maintenance Of A Construction Project

Financial record maintenance of the project

Managing the finances for the construction and building industry includes the reviewing, monitoring and implementation of the strategies for assuring that both individual projects that is, the construction organizations and the building are undertaken by the company to get positive outcome. The positive outcome of the project needs suitable management of finance of the business on regular basis. The construction and building industry has wide range of building or engineering functions for any construction or design project. Thus, the cost accounting under the construction and building industry is crucial for assuring that the accountant provides the overhead rates, historical costs and budgeting data.

Generally, the financial records is concerned with summarising, classifying, interpretation and analysis of financial data that are related to the construction and building projects and delivering the financial data to the users of the financial statements. Generally, the main accounts those are associated with the financial transactions related to credits and debits are –

• Assets – Assets are owned by the organization or the contractor. It is divided into intangible assets like renovation of property, fixed assets and current assets. Fixed assets generally involve buildings, construction equipment, office equipment and other assets those are subjected to depreciation.
• Liabilities – These are owned by the organization or the contractor. It is divided into non-current liabilities (more than one year) and current liabilities (less than one year). For instance, payment due for services and material, bank loans, mortgage loans.
• Net worth or equity – The net worth states the ownership in the net asset of an organization. For instance, retained earnings, capital stock. The retained earnings state the amount of loss or profit whereas the capital stock states the initial investment made by the owner.
• Expenses – the expenses state the cost required for completing the project. For instance, expenses for labour, utilities and materials.
• Revenue – the revenue represents the income that is generated from the services and goods provided before deduction of expenses.

The revenue is recognized on accrual basis that is, when the records related to accounting is included in the records. For instance, when the invoice is send for the payment or the part payment is received for the part of job completion. However, if the invoice coincides with the cash receipt then also is will be regarded as accrual accounting. Further, the expenses are accounted for after the payments are actually made. Moreover, the net profit is calculated by subtracting the taxes from the gross income (Penn and Pennix 2017).

Maintain the record in good manner are crucial for maintain the profitability of any business. Without the financial data, the business cannot evaluate the operating efficiencies. Part of the records is maintained through journal entries which includes various transactions. The recorded journals are maintained under the ledger. However, the complexity of any business is directly related to the complexity of accounts. The organization further balance the debit and credit balance of the account for preparing the financial statements. Further, various journals are prepared in the process of accounting for various purposes. These journals are –

• Cash receipt journal – it records all the cash that are received from debtors, cash sales, interest, commission, sale of the assets.
• Cash payment journal – it records all the cash payments from the business like expense payments, sales returns, drawings of cash by the owner, cash purchase of assets
• Sales journal – it records all the credit sales of the inventories and does not include the cash sales of the inventories.
• Purchase journal – it records all the purchases of the inventory on credit and does not include the purchase made on cash.
• Purchase return journal – it records the returns of the inventories that were purchased originally on credit
• General ledger – it records all the other transactions, for instance, opening entry, bad debt written off, ledger accounts adjustments, purchase or sales of assets and transfer between the accounts.

Financial reports of any organization are crucial for success of the business as they offer the manager or the owner with the detail overview of the organization’s financial status. The reports can be used to compare the figures over the time period that will assist in determination of the performance of the business. The accountings that are followed by the organization for managing the finance of its business are the net worth, assets, liabilities, expenses and revenue.

Business capital

Generally, under the expense account credit increases the capital amount. The cash flow statement can be used to project the amount that will be required to be raised for the business and whether the amount is to be raised through investment or through borrowings. The accountant must assure that there will be sufficient cash balance at the end of the period. The surplus cash can be planned for investment. However, if there is shortage of cash, the additional amount can be raised from the owners. However, the easy availability of the capital business depends on various factors as follows –

• The purpose and scope of business and the plans
• Credibility of managers and the owners of business
• The amount of goodwill
• Organization’s capacity to repay the loan
• Collateral provided in exchange of the capital
• Amount of capital or loan required and the period within which it required to be repaid
• The liabilities owed, assets owned and the position of net equity.

It is crucial for maintaining and developing the strategies for allowing sufficient financial provision for the purpose of taxation. Provision is made ideally, that is cash are kept aside as the reserve for the contingency reasons. Provision for tax is the future liability that is certain. Through the amount of tax is not certain, certain amount of income tax is provided for the financial year.

Performance indicators for the profit are as follows:

• Percentage of gross profit to COGS
• Percentage of net profit to the sales
• Percentage of net profit to COGS
• Percentage of gross profit to the sales

However, the non-financial performance indicators are as follows:

• Accidents
• Labour turnover
• Material wastages customer complaints
• Customer complaints

Communication and recording of the financial procedure are the crucial aspects of any successful business. Efficiencies and consistency are also the key segments for the procedures that will enable the whole business to operate at same level. The financial procedures involve:

• Quotation procedure
• Purchasing procedure
• Invoicing procedure
• Refund procedure
• Petty cash procedure

Managing the financial part of the business that are performed through monitoring and reporting on the targets of financial performance is a crucial part. The decisions with regard to a good business depend on the exact information and accurate analysis. This process is used to manage the risk and at the same time minimizing the risk (McKinney 2015).

The operational and marketing strategy shall include ‘when, who and what’ questions for establishing the track. Each strategy that is implemented shall be monitored regularly to test the effectiveness of the financial plan. The procedure for controlling and monitoring the strategies are to report for assets, liabilities, consumables, revenues and expenses.

The financial ratio generally compares two items or variables. The ratios can be used to demonstrate the financial status of the company. The ratios which can be used to evaluate the financial performance are –

• Leverage ratio to meet the obligations
• Solvency ratios to meet the long-term obligations
• Operational ratios to compare the operating expenses with the net sales
• Liquidity ratios to assess the ability of the company to pay-off the obligation

From the above discussion, it is concluded that the company shall engage a person who have analytical skill to interpret the financial data, can communicate to negotiate the capital and report on the performance of the company. Further, the engaged person shall have appropriate literacy skills and numeracy skills to interpret the legal requirements and calculate the profits, prices, costs and other required financial information. 

Reference

McKinney, J.B., 2015. Effective financial management in public and nonprofit agencies. ABC-CLIO.

Penn, I.A. and Pennix, G.B., 2017. Records management handbook. Routledge.

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