Question

Topic 1 (Note: Briefly in your own words 1 paragraph minimum, use and attach reference.)

Accounting Practices:

Using reading and research, locate a scholarly article that discusses accounting practices or the role of accounting in construction.

1.) Give a brief summary of what you learned and discuss how you will use this knowledge in your future career in construction management, what are the most common methods and programs used.

Discussion Topic 2 (Note: Briefly in your own words 1 paragraph minimum.)

Depreciation:

1. What impact do you think depreciation has on a construction company from a financial standpoint?  

2. Why do you think we need to depreciate some assets but not others?

Answer 1

The accounting is somehow different in a construction company from the rules that we generally use in case of other business accounting.

This is because in case of construction accounting the things are seen with a different perspective rather than the same normal perspective that we have when doing accounting for a business.

Since the construction accounting is related with accounting of the real estate there are many differences and methods that can be seen as below.

Method of accounting

In case of construction accounting this is seen that they the company can choose accrual accounting and cash accounting both ways for different projects.

For some of the projects they can use the cash method and for some of the projects they can use the accrual accounting method.

This is the different method that is seen as compared to normal business method.

Percentage of completion method

In case of construction accounting this is seen the method that is used for accounting of income and expenditure is based on the certificate of completion

In this certificate of completion this has to be seen that how much of the project cost has been completed and how much of the project revenue is to be recognized.

Completed contract method.

In case of completed cost method this is seen that the cost and income is not recognized for a long term project unless the contract has been completed.

So this means that we cannot see any cost or revenue unless the contract is completed.

From a financial standpoint the depreciation that has been charged in the books will reduce the asset value that the construction company holds

Deprecation is always the reduction in the value of asset and for a construction company there assets are buildings, offices and other real estates and due to wear& tear, economical factors they lose their value and this lead to a reduction in the financial position of the company.

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Some of the asset are depreciated but other are not depreciated.

This is because of the fact that the depreciation means that the value of the asset is reduced but there are some assets that does not loose there value and are always remain of the same value as they were purchased.

The best example of such asset is Land, land is the asset that is not charged to any depreciation as land does not lose it value over time.

However the building that has been made on the land is charged to depreciation as there is wear& tear in the building.

So some of the assets are charged to depreciation and some of the assets are not charged to depreciation