what is backlog in construction accounting

What you actually need is balance, andmanaging your backlogis how you’ll get it. Yes, you always need work in the pipeline — but ensuring that you’re profitable and that your customers are happy is equally as important. How Purchase Obligations (in the 10-k) Affect Inventories and Capex Purchase obligations can be a key part of understanding future cash flow. In 2002, the SEC made the disclosure of purchase obligations a requirement…

They accumulate and are “held” in a separate general ledger account. Sean Rizer is the CFO for Harding Group, Indianapolis, Indiana, which performs asphalt services, supplies hot-mix construction bookkeeping asphalt and provides dump truck transportation. Prior to joining Harding Group, Rizer spent over 10 years in public accounting, providing operational and transactional consulting.


Understanding a Work in Progress Report is important for contractors to maximize their surety bond capacity, but it is also much more than that. Contractors should get in the habit of preparing and looking at these reports monthly to understand how their projects are performing and how that performance will affect their businesses. Surety Bond Companies use a Contractor’s Work in Progress Report to assess trends from the contractor.

Do you have an existing business relationship with the potential customer? If you are up against larger organizations with a track record of winning similar jobs, your business may be less likely to win the contract. Apipelineis the potential business you can bring in over a given time period. It is Opportunity Sales Dollars that are factored with probability percentages to calculate reasonable and supportable Potential Sales Dollars. Government contractors should base their pipelines on submitted proposals. When projects stalled across the country during the initial weeks of the pandemic — some indefinitely because of lost funding — the construction industry became increasingly aware of backlog.

Contract Backlog definition

For example, a rising backlog of product orders might indicate rising sales. On the other hand, companies generally want to avoid having a backlog as it could suggest increasing inefficiency in the production process. Likewise, a falling backlog might be a portentous sign of lagging demand but may also signify improving production efficiency. Naturally, unexpected backlogs can compromise forecasts and production schedules.

what is backlog in construction accounting