The important standards in construction accounting and invoices

Construction accounting is a branch of financial accounting that is indispensable for construction companies in Egypt and The Middle East .It is the most important at the present because of the domination of this sector on the economic system of the company . It is carried out through either direct or indirect contracts .

The definition of construction contract : it is a contract according to which a part commits to establish a foundation or perform particular  work or service for a certain sum that is paid by the other part . This sum can be paid instalments or at once as written in the contract . 

 

Types of accounting contracts of the construction companies  

Direct contract : that is the contractor deals directly with the beneficiary or owner.

The indirect contract : (subcontractor ) the direct contractor deals with another one to get part of or the  whole work done according to the aggregate contract .

Short-term contract : it lasts only  during the financial period or for a year.

Long- term contract : it lasts for years and doesn’t end within the year or the financial or tax period .

Fixed price or value contract : ( lump sum contract ) its items include the value of execution according to the required criteria .

Unfixed price or value contract : the owner or beneficiary pays for the constructor the actual cost besides the profits margin .

Direct assignment  contract : the work is directly assigned to the main constructor.

Public and limited bids contracts : that are announced for using all kinds of media .

Services : A service is defined as the benefit either natural or mental performed for others for a certain price . The service is done by an individual effort or using some equipment  that belongs to the performer and by people who work for him .

Operating for others service definition : they are a set of services which are performed for the others by the performer or contractor using equipment of his own or belong to the others and they are also worked by him or his workers .

 

Consultant  engineer : the project owner  designates a consultant or more to supervise the work of the contractor and receive it from him according to the standards in agreement .

 

Who is the owner in construction accounting ?

 It is the part that gets benefits from the work of the general contractor .

The general contractor is the person who deals directly with the

Part and is responsible for carrying out the work according to the criteria .

The subcontractor is responsible for carrying out the work according to the prescriptions to the general contractor . He has no direct relation to the owner .The construction company has three sources for workers : bids and practices , consultant engineer with direct command , relatives and friends .

The invoice enables the general contractor to get the value of the achieved work , as he writes a statement that shows the quantity and price of the work . These invoices are serialized till the end of the whole work then he prepares a concluding statement . 

Learn about the best prices of accounting software in Egypt and The Middle East .

 

The definition of construction contract in the construction company :  

It is an agreement  according to which the contractor commits to carry out a work or a service for a certain fee that is paid by the other part . So the contractor provides the required materials and equipment for the work .

 

The procedures of work in construction company : 

The direct assignment or announcement for the construction process through the owner using bids of all types  , practices or direct assignment .

The construction companies get the prescription book to review .

They prepare a technical and financial report about the project to calculate its cost .

After that they present technical  and financial  statements to the owner in closed envelopes attracted to a letter of guarantee or bid insurance .

The owner  opens the envelopes and examines the presented offers and in the case of accepting a technical offer the financial one is studied then on the approval the insurance is increased with a ratio of the bid value or a final guarantee letter is presented with the value in the contract . But in the case of rejecting the offer the insurance value or the guarantee letter   is returned back  .

After accepting the offer the construction companies prepare an indexation for the required work then the contract is made between the owner company and the construction company 

The reception of worksite and preparation for carrying out the work in agreement .

 

The cycle of invoices in construction accountings : 

The general constructor achieves all the work in his own or assigns part of it to a subcontractor and in this case there is going to be a contract between the general contractor and the subcontractor to clarify all the work he has to do and the time allowed . 

The achieved work is recorded in invoices by the construction  companies accounting software .

The invoices are signed by the project  manager and the general consultant engineer then the contractor can get his payments .

After that a concluding invoice is prepared with the signature of the consultant with reference to the indexation and the contract .

Finally the worksite is handed to the owner .

 

Some construction companies don’t need a test period to approve the concluding invoice .

The file should include all required invoices which prove all the processes of his work .

 

The construction contract  / invoice 

The Group of  ledger : there are required ledgers according to the law ( general ledger , inventory book ) .

There are some others like revenues book 

General expenses ledger 

Cost ledger 

Assignment ledger , subcontractor assignment ledger 

Daily purchases ledger ( contracts) 

Warehouse incomings ledger

Outgoing ledger 

Wages ledger 

Fixed assets ledger