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Accounting & Financial Management for Builders, Remodelers & Developers 5th Edition: Overview
Accounting & Financial Management
for Residential Construction - Fifth Edition
Emma Shinn
Take control of your finances with Accounting and Financial Management.
This solid resource for builders, remodelers, developers, and contractors provides
detailed information on how an accounting system operates and the basic principles
for processing financial data. This fifth edition includes the updated NAHB
Chart of Accounts and explains
- how technology facilitates procedures for such items as accounts payable,
change orders, and payroll and how it impacts processing systems
- the impact of additional management reports and how they can enhance and
facilitate a manager's job
- the key measurements that residential construction professionals should
track
- the integration of job cost accounting with estimating, purchasing, and
scheduling
- the profit center concept for multiple-project companies and its reporting
requirements
This book is a part of the core curriculum for several of our construction
management programs. It provides essential information to take control of
your finances.
Elizabeth Sugg, Curriculum Manager, Cengage Learning, Clifton Park, NY
Emma Shinn specializes in accounting and financial management for the home
building industry. Her background Includes all aspects of the building process
including planning, design, supervision, sales, and administration of Single-family
projects.
Accounting & Financial Management for Builders, Remodelers & Developers 5th Edition: 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
- Outline of the NAHB Chart of Accounts, 89
- Complete NAHB Chart of Accounts, 93
- Basic Accounts For Small-Volume Businesses, 105
- Direct Construction Costs Subsidiary Ledger, 109
- Indirect Construction Costs Subsidiary Ledger, 113
- Land and Land Development Costs Subsidiary Ledger, 115
- 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 VIII, 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
Accounting & Financial Management for Builders, Remodelers & Developers 5th Edition: Introduction
Introduction
Every company should produce monthly financial statements and other reports
for management use. Just as any home or building must rest on a secure and
solid foundation, an understanding of accounting should be the firm foundation
upon which a company rests.
This revised and expanded fifth edition of Accounting and Financial Management
for Residential Construction assumes the reader has no previous knowledge
of accounting. It uses straightforward and easy-to-comprehend explanations
and illustrations to help builders, remodelers, and developers understand accounting
and bookkeeping terminology and procedures.
Emma Shinn will lead the reader through the process in a methodical manner,
building concept upon concept so that even the most complex accounting functions
can be easily understood.
This book can be used by any type of builder (single-family, multifamily, or
commercial), remodeler, and developer. It includes the complete, updated NAHB
Chart of Accounts (to be adapted to your business) and the job cost control
subsidiary ledger accounts for direct, indirect, and land development costs.
This fifth edition of Accounting and Financial Management
- presents an overview of accounting and how an accounting system operates
- offers guidelines and a general structure for designing an accounting system
- presents general concepts and principles of financial planning and analysis
- details how to integrate job cost accounting with estimating, purchasing,
and scheduling
- explains how technology facilitates accounting processes
- explains how owners and managers can use financial reporting to enhance
and improve their companies
- provides special tips for multiple-project builders (Chapter 11), developers
(Chapter 12), and remodelers (Chapter 13) to use and benefit from the profit
center concept
Although the book begins with the basics, readers can go as deeply as they
wish. In fact, some builders, remodelers, and developers give the book to their
certified public accountants (CPAs) with their records at year's end to facilitate
the CPA's understanding of the unique aspects of residential construction and
remodeling.
Moreover, using financial reporting systems helps builders, remodelers, and
developers determine their financial position at any time; compare current
and historical performance; and benchmark their performance against other builders,
remodelers, developers; and even the industry itself.
So, roll up your sleeves, grab your financial data, a cup of coffee, and get
started.
Accounting & Financial Management
for Residential Construction - Fifth Edition
Emma Shinn
Take control of your finances with Accounting and Financial Management.
This solid resource for builders, remodelers, developers, and contractors provides
detailed information on how an accounting system operates and the basic principles
for processing financial data. This fifth edition includes the updated NAHB
Chart of Accounts and explains
- how technology facilitates procedures for such items as accounts payable,
change orders, and payroll and how it impacts processing systems
- the impact of additional management reports and how they can enhance and
facilitate a manager's job
- the key measurements that residential construction professionals should
track
- the integration of job cost accounting with estimating, purchasing, and
scheduling
- the profit center concept for multiple-project companies and its reporting
requirements
This book is a part of the core curriculum for several of our construction
management programs. It provides essential information to take control of
your finances.
Elizabeth Sugg, Curriculum Manager, Cengage Learning, Clifton Park, NY
Emma Shinn specializes in accounting and financial management for the home
building industry. Her background Includes all aspects of the building process
including planning, design, supervision, sales, and administration of Single-family
projects.

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