What are Liabilities?

The percentage-of-completion method is an accounting method used in the construction industry to recognize revenue and expenses for long-term projects as they progress—rather than waiting until the project is completed. Under the POC method, a contractor or subcontractor estimates the total contract revenue, total contract costs, and the percentage of work completed during a specific accounting period.

Revenue is recognized based on the percentage of work completed multiplied by the total estimated contract revenue. Expenses are recognized based on the percentage of work completed multiplied by the total estimated contract costs. This method aims to provide a more accurate representation of a construction project's financial performance over its duration rather than recognizing all revenue and expenses at the end.

For subcontractors and their accounting teams, understanding the POC method is crucial for three reasons:

1. It directly impacts their revenue recognition and financial reporting, enabling them to assess profitability throughout project lifecycles. 
2. It affects their cash flow projections and management, as progress payments are typically tied to the POC. 
3. Understanding this method ensures compliance with accounting standards and regulations, minimizing the risk of audits or penalties.

Siteline supports the POC method, ensuring accurate financial reporting and cash flow management. With Siteline, you can:

• Generate custom pay applications using real-time POC calculations
• Integrate with general contractor (GC) payment portals to ensure timely and accurate submissions
• Gain real-time insights into project financials with intuitive dashboards
• Centralize all documentation for improved field-to-office collaboration

Book a demo today to discover how Siteline can enhance your accounting processes, strengthen your cash flow, and ultimately contribute to your company's financial success.

Overhead, in the context of the construction industry, refers to the general, ongoing expenses associated with managing a construction company or project that cannot be directly linked to individual construction jobs or projects. These expenses can include administrative costs such as office rentals, utility costs, support staff salaries, and costs associated with legal compliance, insurance, and marketing. Overhead also includes costs associated with maintaining and repairing equipment, employee training, travel expenses, and team benefits. These costs are necessary for the business operation but do not contribute directly to a specific project’s profit. A proper understanding and efficient management of overhead costs are essential to maintaining business profitability and competitiveness.

Liquidated damages in the construction industry are a pre-agreed sum specified in a construction contract, which the contractor will pay to the client in the event of a breach of contract, typically when there are delays in completion. This contract clause serves as a protection mechanism for the client, giving an estimate of the potential loss they might incur due to the delay. However, liquidated damages must be a genuine pre-estimate of loss, not a penalty. They are not intended to be a punishment, but a compensation for the client's actual anticipated loss. This approach mitigates the risks and provides predictability for both parties in a construction project. One party cannot claim more than the contracted liquidated damages. They bring certainty to the potentially complex process of calculating actual damages in construction delays, thus fostering an efficient dispute resolution.