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ASC 606
What is ASC 606, Revenue from Contracts with Customers?
ASC 606, Revenue from Contracts with Customers, is an accounting standard that provides a comprehensive, industry-neutral revenue recognition model intended to increase financial statement comparability across companies and industries. For the construction industry, it has substantial implications as it changes how and when revenue from contracts is recognized. Under this model, construction companies recognize revenue by transferring promised goods or services to customers in an amount that reflects the consideration they expect to receive. ASC 606 can affect a construction company's financial statements, operations, and tax obligations. It demands that companies disclose more detailed revenue and contract information than before. Therefore, understanding ASC 606 is critical for construction industry stakeholders to assess a company's performance and future prospects accurately.
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Other construction terms
What is costs in excess of billings?
Costs in excess of billings (often called underbillings or earnings in excess of billings) is an asset account on a construction company’s balance sheet representing work performed and expenses incurred that have not yet been billed to the general contractor or project owner.
Underbillings occur when continuous jobsite expenses—such as labor, materials, and mobilization—outpace periodic progress billing cycles or when work is performed on unapproved change orders. Under the percentage-of-completion accounting method, costs in excess of billings reflect earned revenue that will be converted into formal accounts receivable on the next pay application.
How Siteline Helps:
Underbilling ties up cash flow and risks leaving earned revenue on the table. Siteline provides real-time visibility into unbilled work, pending change orders, and job completion milestones—helping trade contractors generate accurate pay apps quickly and turn earned revenue into collected cash.
What is a Deduction?
A deduction in the construction industry refers to a reduction or subtraction of expenses or costs incurred during a construction project. Typical deductions may include costs of materials, labor, damage repairs or maintenance, and professional fees such as architect or engineer services. It is essential for construction businesses to keep track of these expenses as they can be beneficially used for tax deduction purposes. The aim is to lower the overall taxable income, resulting in a reduced tax bill. However, it is crucial to ensure that all deductions comply with laws and regulations to prevent any potential legal implications.
What are Fixed Costs?
Fixed costs, in the context of the construction industry, are the expenses that a contractor has to pay regardless of the level or volume of building activity. These costs, also known as overhead costs, remain constant and do not change with the fluctuations in work demand or project size. They typically include items such as rent or mortgages for office space, salaries for permanent staff, insurances, property tax, machinery depreciation, among other expenditures. The ability to manage fixed costs effectively is vital for a construction company's profitability and viability, as they represent a substantial portion of the total expenses.
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