Construction accounting glossary.
Plain-English definitions of the terms that decide whether a construction company makes money. No accounting degree required.
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Backlog
The total value of signed work not yet performed. It is a forward look at revenue and, combined with your WIP schedule, a key input into cash-flow forecasting and bonding conversations.
Bonding capacity
The maximum amount of bonded work a surety will back you for, based largely on your financial statements and working capital. Clean, WIP-supported financials directly increase how much work you can take on.
Certified payroll
A weekly payroll report required on many public and prevailing-wage jobs, showing each worker's hours, classification, and pay rate to prove compliance with wage laws. Getting it wrong can stall payment or trigger penalties.
Change order
A documented change to a job's scope, cost, or schedule. Change orders that get performed but never formally billed are one of the most common ways contractors give away margin.
Cost-to-complete
An estimate of the remaining cost to finish a job. It drives the percentage-of-completion calculation and is where optimistic estimating quietly turns a job from profitable to losing on paper.
Job costing
Assigning every cost and every dollar of revenue to a specific job rather than tracking the company as a whole. It is the only way to see which jobs make money and which lose it, before they close instead of months after.
Overbilling
Billing more than the work completed to date. It creates a cash cushion that can mask a profit problem, because the money is really a liability, revenue you have collected but not yet earned. Flagged on the WIP schedule.
Percentage of completion
A method that recognizes revenue on a job in proportion to the costs incurred against the total estimated cost. If a job has incurred 60 percent of its expected costs, it is treated as 60 percent complete, and earned revenue is calculated from there rather than from billings.
Prevailing wage
A legally mandated minimum wage and benefit rate for workers on public construction projects, set by government for each trade and area. Bidding public work at your normal wage instead of the prevailing rate is a common and costly mistake.
Retainage
A percentage, commonly 5 to 10 percent, that a client holds back on each payment until the job is complete. It is your money, but it can sit uncollected for months and is easy to forget is owed to you.
Underbilling
Work you have performed but not yet billed. It is often a hidden drain on cash and a sign of billing that has fallen behind production. Also flagged on the WIP schedule.
WIP schedule
A work-in-progress schedule reconciles each active job's costs incurred, amount billed, and estimated cost-to-complete to show real-time profit and whether you are over or under billed. It is the single most important report most contractors lack, and sureties require it for bonding.
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