Keeping the Books: A Taxing Task

by Sue A. Back, CPA, Partner; RJ Pile & Co., Indianapolis, IN,
B. Carol Howard, CPA, Manager; RJ Pile & Co., Indianapolis, IN,

Serial Information: Civil Engineering—ASCE, 1993, Vol. 63, Issue 12, Pg. 74-75

Document Type: Feature article


Keeping two sets of financial books used to be considered a criminal act. Now it may mean survival for building contractors. Construction contractors are faced with the challenge of following GAAP° (general accepted accounting principles) while adhering to the regulations and rules of the federal tax code. This is not an easy task, because the two accounting methods are at opposite ends of the financial reporting spectrum. Nevertheless, business owners subject to long-term contract reporting rules (such as those that consturct or install) must understand and follow both methods. Generally, companies that provide services such as engineering, architectural design, or construction management, are not subject to these rules. Although the service provider does not have to use the long term contract reporting method, a consturction manager may be asked to provide some information needed to determine the percentage of contract completion at the contractor's tax-year end. Under GAAP, financial statements present an income or loss with a conservative point of view. The Internal Revenue Service, on the other hand, insists that a contractor report a portion of the estimated total contract revenue based on the relationship of actual costs incurred to total projected contract costs. This means that larger amount of income is shown sooner-and is subject to taxes-than would be shown in a GAAP financial statement.

Subject Headings: Contractors and subcontractors | Revenues | Construction costs | Federal government | Taxation | Standards and codes | Owners | Engineering firms

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