Accounting & Financial Management for Residential Construction
Table of Contents

Forward, vii

Introduction, 1

1. Designing the System and Choosing an Accountant, 3
Designing the System, 3
Choosing an Accountant, 4
     The Bookkeeper, 5
     The Accountant, 5
The Certified Public Accountant, 5
CPA Firms and Level of Services Available 6
     Audits, 6
     Reviews, 6
     Compilations, 6

2. Basics of Accounting, 7
Accounting Systems, 7
     Financial Accounting System 
Managerial Accounting System, 7
     Accounting Equation, 9
     Assets, 9
     Equities, 9
     Debits and Credits, 9
Net Income, 10
     Revenues, 10
     Cost of Sales, 10
     Operating Expenses, 11
Financial Statement, 12
     Income Statement, 12
     Balance Sheet, 12
Users of Financial Information, 12 
Reporting Requirements, 14
Audit Trail, 14

3. Accounting Methods and Terms, 15
Accounting Methods, 15
     Cash or Accrual, 15
     Completed Contract or Percentage of Completion, 16
     Direct Costing or Absorption Costing, 17
Terms, 17
     Revenues Versus Cash, 17
     Expenses Versus Cash Disbursements, 17
     Profit Versus Cash Balance, 17
     Expenses Versus Costs, 17
     Indirect Construction Cost Versus, 17
     Overhead, 17
Fixed Versus Variable Costs, 17

4. Chart of Accounts, 19
Structure, 19
Numerical Coding System, 19
Customizing the Chart of Accounts, 20

5. Bookkeeping Procedures, 21
Flow of Information, 21
     Journals, 21
          General journal, 21
          Special journals, 22
Ledgers, 22
     General Ledger, 24
     Subsidiary Ledgers, 24
Processing of Data, 25
     Journalizing, 25
     Posting, 25
          Adjusting Entries, 25
          Closing Entries, 25
Office Filing Procedures, 25

6. Internal Control, 27
Objectives and Requirements, 27
     Authorization, 27
     Record Keeping, 27
     Custodianship, 27
     Policies and Procedures, 27
Cash Management and Control, 28
     Checking Account Procedures, 28
          Cash Balance Control 28
Cash Receipts and Disbursements, 30
     Petty Cash, 30
Loan Administration, 31
     Delegate Responsibility, 31
     Learn and Follow Procedures, 31
Account for the Funds, 31
Estimating and Purchasing, 32
Coordination and Accounting System

7. Financial Reports, 33
Balance Sheets and Income Statements Balance Sheet, 33
     Balance Sheet, 33
          Assets, 35
          Liabilities, 35
          Owners' Equity, 35
Income Statement, 35
     Revenues, 35
     Cost of Sales, 36
     Operating Expenses, 37
Other Income and Expenses, 38

8. Financial Analysis, 39
Gross Profit Analysis, 39
Cash Flow Analysis, 40
Financial Ratio Analysis, 42
     Liquidity Ratios, 42
     Profitability Ratios, 42
     Leverage Ratios, 43
     Return on Investment Ratios, 43
Ways to Improve Ratios, 44
     Return on Sales, 44
     Asset Turnover, 44
     Leverage, 45
Breakeven Analysis, 45

9. Overview of Job Cost Accounting
Design the System, 47
Establish the Job Cost Format, 48
     NAHB-McBee One-Write System, 48
     Multicolumn Job Cost System, 50
     Code of Invoices, 50
     Improve Control with a Purchase Order System , 50
     Prepare the Job Cost Reports, 50

10. Processing System, 53
In-House Computer, 53
Manual Systems, 53
One-Write Systems, 53
Computerizing Your Accounting Functions, 54
     Accounting Applications, 54
     Service Bureaus, 54
     Other Applications, 55
NAHB Software Review Program, 56

11. Tips for Multiproject Companies, 57
General Accounting, 57
Chart of Accounts, 57
Profit Centers, 58
Job Costing, 58
Indirect Construction Cost, 58
Marketing and Financing Expenses, 59
General and Administrative Expenses, 59
Financial Analysis, 59

12. Tips for Developers, 61
General Accounting, 61
Chart of Accounts, 62
Job Costing, 62
     Development Cost, 62
          Indirect Costs, 63
          Financing Costs, 63
     Lot Cost Allocation, 63
     Lot Pricing, 64
Financial Analysis, 64

13. Tips for Remodelers, 65
General Accounting, 65
Chart of Accounts, 66
Credit Approvals, 66
Job Costing, 67
Completed Contracts, 67

14. Financial Planning 69
Elements of a Budget, 69
     Sales Plan, 69
     Production Plan, 71
          Land and Land Development Costs, 71
          Direct Construction Costs, 71
          Indirect Construction Costs, 71
          Cost Estimate Summary, 71
     Cost of Sales Plan and Gross Profit Plan, 71
     Operating Expenses Plan 71
     Profit Plan, 72
     Cash Flow Report, 72
Reports, 77

15. Technical Aspects of Accounting, 79
Land Acquisition and Development Treatments, 79
     Preacquisition Costs, 79
     Acquisition Costs, 79
     Land Development Costs, 79
Accounting for Amenities, 80
     Carrying Costs, 80
     Direct Construction Costs, 80
     Indirect Construction Costs, 81
     Consistency, 83
Revenue Recognition, 83
     Full Accrual Method, 83
     Percentage-of-Completion Method, 84
     Installment Sales Method, 85
     Cost Recovery Method, 85
     Deposit Method, 85
Other Sources of Information, 85

Appendixes
A. Outline of the NAHB Chart of Accounts, 89
B. Complete NAHB Chart of Accounts, 93
C. Basic Accounts For Small-Volume Businesses, 105
D. Direct Construction Costs Subsidiary Ledger, 109
E. Indirect Construction Costs Subsidiary Ledger, 113
F. Land and Land Development Costs Subsidiary Ledger, 115
G. NAHB Approved Accounting Software, 117

Notes, 119

Figures

Chapter 2. Basics of Accounting
2-1. Nature, Structure, and Output of an Accounting System, 7
2-2. Flow of Data Through the System, 8
2-3. Flow of Costs Through the System, 13

Chapter 5. Bookkeeping Procedures
5-1. General journal Format, 21
5-2. Sample Payroll Journal, 22
5-3. Levels of Recording, 23
5-4. General journal Format, 24
5-5. Subsidiary Ledger Format, 24
5-6. Job Cost Subsidiary Format, 24

Chapter 6. Internal Control
6-1. Bank Reconciliation Statement, 30

Chapter 7. Financial Reports
7-1. Balance Sheet, 34
7-2. Income Statement, 35

Chapter 8. Financial Analysis
8-1. Cash Flow Report, 41

Chapter 9. Overview of job Cost Accounting
9-1. Job Cost Card, 49

Chapter 10. Processing Systems
10-1. NAHB Approved Software, 56

14. Financial Planning
14-1. Planning Information Flow, 69
14-2. Schedule I, Sales Plan, 70
14-3. Schedule II, Land and Land Development Plan, 72
14-4. Schedule III, Direct Construction Costs, 73
14-5. Schedule IV, Indirect Construction Cost Estimate, 74
14-6. Schedule V, Cost Estimate Summary, 74
14-7. Schedule, VI, Cost of Sales Plan, 75
14-8. Schedule VII, Gross Profit Plan, 75
14-9. Schedule VIll, Operating Expenses Plan, 76
14-10. Schedule IX, Profit Plan, 77
14-11. Cash Flow Report, 78

15. Technical Aspects of Accounting
15-1. Minimum Initial Investment Chart, 84