Management accounting presented inunderstandablehumanaccessiblelanguage.

Management accounting presented inhumanaccessiblelanguage.

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Construction

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How to construct a managerial statement in the field of construction (or any other single-piece manufacture)

How to construct a managerial statement in the field of construction (or any other single-piece manufacture)

So, you have prepared the reports on your enterprise and presented three main forms to your boss. These forms include Balance sheetProfit and loss accountCash flow statement.

If your company produces consumer goods and sells them in large quantities, your boss will be satisfied with the total figures in sales volume, warehouse balance, accounts receivable. In other words he will get the necessary information from your reports (in case he is able to understand financial statements).

If your company is involved in a small-scale or single-piece production, the main three statements will not present the information sufficient for the boss.

Let’s consider the example of a report for a single- piece production in construction field. Surely, this type of enterprise is not involved in trading, but in any case we will have a set of unique production facilities (construction), each of them will be interesting for the head of the company.

Thus, if we present only three main reports to the head of the construction company, he will be able to see just:

  • total sales (volume of construction works confirmed with the work completion certificates signed by customers)
  • total cost of these works,
  • total accounts receivable, total warehouse balance, etc.

This kind of information is not appropriate for him, since it is not informative for the construction business.

Why is it non-informative?

As a rule, the company has several construction objects at different stages. So, each object has its own set of characteristics necessary for the boss:

  • sum of the contract;
  • sum of prepayments from the customer;
  • amount of work completion certificates signed by customers;
  • amount of work completed, not included in the certificates (work in progress);
  • materials purchased for the object, but not written off in production (storage facility);

So, the main reports do not cover this type of information. Surely, all these figures are mentioned there (except for sum of the contract), but in an abstract state, and it is impossible to consider a particular object. It is necessary to construct additional statement to obtain the information your boss needs.

What do we need?

To realize what kind of reports we need we must be able to understand what our boss wants to have. His “wish list” can include not just total income figures but the income received from each particular object as well as total income for the reporting period.

Besides, he wants to receive the following type of information (about each particular object):

  • Work in progress by the type of expenditure.
  • Warehouse balance.
  • Amount of work completion certificates signed by customers.
  • Sum of prepayments from the customer.

To present this information in an understandable way you need to construct such additional reports as:

  1. Report on the gross margin in the context of objects with explanations.
  2. Report on financial and economic state of the object.

I would like to mention that these reports can not be used instead of the main ones, they provide the information additional to Balance sheetProfit and loss accountCash flow statement.

Let’s have a closer look at these reports:

  1. Report on the gross margin in the context of objects with explanations:

It contains detailed information about the income from Profit and loss account in the context of objects, so it shows how company income is comprised. I will underline once again that this type of report is to be used in a single-piece production, otherwise, it is useless.

When you construct this type of report you should remember that the line “Total” is to be equal to the corresponding line in Profit and loss account.

The figures in column “Volume of the work completed” are to be equal to the line 1 “Sales volume”.

The figures in column “Cost of the work completed” are to be equal to the line 2 “Cost of the goods sold”

The figures in column “Financial result” are to be equal to the line 3 “Gross profit”.

In fact, lines 1 and 2 in Profit and loss account of the construction company will be titled in another way, but here I use the information from the previously mentioned reports, so do not forget about that while constructing your own reports. Everyone knows that mindless copying is a sure way to fail.

Each line of the above stated report, which is connected with the construction object, is followed by the explanation containing the signed work completion certificate for the reporting month and the expenditures for the reporting month written off in accordance with the work completion certificate.

Please note, this explanation is an information reference to the object during the reporting month, not the entire period of the works. The number of information references to the report will account for the number of signed work completion certificates for the reporting month.

What type of the information can be obtained from this report?

This report will provide the information about the income received from particular objects for the reporting month, and which objects were unprofitable (this option is possible as well).

In addition, you will get the information about the expenditures (type and amount) written off in accordance with the signed certificates.

  1. Report on financial and economic state of the object

The report is interrelated with the explanations to the above stated report on the gross margin. But it has a fundamental difference:
If explanations show the cost of the object written off in accordance with the work completion certificate, this report shows all the costs incurred in the work on this object – both written off in accordance with the work completion certificate and those of the work in progress.

Thus, this report includes all the financial and economic events that occurred in the work on this object, starting from the date of contract signing. (Though the sum of the contract is not an accounting figure, it is mentioned in this report).

Costs incurred on an object are recorded in the month of occurrence (except for the material costs).

Materials bought for the object are recorded not by the month of payment but by the total warehouse balance at the moment of report construction. When the warehouse materials are written off as expenses their sum is posted into the table of total costs. Before writing-off all the materials are included into the warehouse balance cost.

In addition to costs, the report includes monthly prepayments from the customer as well as work completion certificates.

Thus, this report shows the overall picture of the object at a certain date.

What type of the information can be obtained from this report?

This report will provide the information about the financial and economic state of the object. Each construction company should strive for working at the expense of the customer. By comparing the total cost of the object with the amount of the prepayment the boss will see whether there is customer’s money left or the company works on the object at its own expense.

Moreover, some questions can arise if the total costs exceed the sum of the contract. It can happen in two cases:

  1. Additional works on the object requiring additional agreement and an increase in the total sum of the contract. If this has not been done but the additional works have started the authorized person is to provide the explanations on the matter why the additional agreement has not been signed.
  1. Mistake in the original cost of the work or an increase in the cost of works by contractors. In this situation, some other questions can arise and the explanations will be required.

In conclusion, I would like to add that the above stated additional reports are optional and their form can differ depending on the requirements of the boss. The most important rule in the report construction is a convenience for the end user (i.e. the boss and / or the owner of the enterprise).

400 руб each Additional reports in construction

 

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