Construction Month-End Close Checklist

Many say humans are “creatures of habit” and prefer routines, especially accountants. Those habits and routines may exist in our personal lives, professional lives, or both. As a business owner, establishing sound habits and routines around your company’s financial reporting process is key to monitoring its performance throughout the year. The ability to produce reliable financial statements also provides assurance to third parties, such as your bonding company or bank, to assist you with your business needs. Below you will find suggested procedures from an auditor’s perspective that can be incorporated into your monthly close processes (habits/routines), primarily focusing on your company’s balance sheet.  

1. Cash/Bank Accounts

• Verify that the bank balance on the bank reconciliation agrees with the respective bank statement balance.
• Verify that the cash recorded on the trial balance agrees to the bank reconciliation's ending cash balance.
• Review outstanding checks older than six months and determine those that need to be voided.
• Review for any unusual reconciling items identified and address them promptly.

2. Accounts Receivable

• Verify the accounts receivable aging total agrees with the balance recorded on the trial balance.
• Identify significant account balances past due and follow up with the customer or document the collection status.
• Review retainage terms (if applicable).
• Discuss with management and determine if any past due balances need to be reserved against or written off as bad debt.

3. Other Current Assets (Prepaid Expenses/Other Receivables)

• Review the balances and verify the appropriateness and existence of the asset on the balance sheet.
• Maintain a schedule to track balances and verify it is updated for all recent activity. Verify the schedule in total agrees with the balance recorded on the trial balance.
• In the case of prepaid expenses, review the amortization calculation of your prepaid asset, and adjust to the related expense if necessary.

4. Fixed Assets

• Identify fixed asset additions and disposals during the period and document the following:
  • Acquisition/disposal date
  • Asset description
  • Copy of invoice from the purchase of assets greater than the company’s established capitalization policy
  • Are proceeds received on sale/disposal or trade-in of asset applicable?
• Record adjustment for depreciation/amortization expense.
• Reconcile balance sheet accounts to depreciation schedules. Reconciliation should include verifying balances of asset categories, accumulated depreciation/amortization and depreciation/amortization expense agree to totals on depreciation schedules.
• Review “Equipment” type expense accounts on the income statement to ensure any necessary expenses/purchases are capitalized if they exceed the company’s capitalization policy.

5. Accounts Payable

• Verify the accounts payable aging total agrees with the balance recorded on the trial balance.
• Review accounts payable aging for any unapplied balances.
• Review vendor balances for any discount opportunities related to payment terms.

6. Accrued Payroll and Related Payroll Liabilities

• Trace balance in the account to supporting payroll records for payroll accrual for the respective month.
• Determine the correct amount of days in payroll accrual.
• Trace to the payroll tax returns filed in the following month/quarter.

7. Other Accrued Expenses

• Verify any balances in this account can be traced to a specific expense.
• Review and consider what necessary liabilities are NOT recorded and determine if they should be recorded in the current period.

8. Notes Payable/Long-Term Debt

• Reconcile note payable/long-term debt schedule, which reflects monthly payments of principal and interest as well as ending note balance.
• Verify interest expense reconciles to the income statement.

9. Update Work in Progress (WIP) Schedule (See future article on how to further analyze your WIP schedule)

• Update the WIP schedule for the following changes to contracts:
  • New contracts signed
  • Change orders signed
  • Monthly billings
  • Project costs and overhead costs in the current period charged to projects
• Update the WIP schedule for the following changes to estimates:
  • Contract price
  • Revisions to costs estimates
  • Change orders
• Review the summarized schedule of contract activity to determine if any additional adjustments to contracts or estimates need to be made.
• Record adjustment for under/overbillings and tie out to the balance sheet.

10. Income Statement Analysis

• Generate a year-to-date income statement for your current fiscal year and compare that to the year-to-date income statement from the prior fiscal year. Based on your knowledge of the company’s performance from year to year, investigate any fluctuations that appear unusual when comparing the two income statements. The findings may vary; you could find you were more efficient in one period over the other, or you could find you had one-time charges that were appropriate for one period and not the other. Whatever the case, this exercise may assist you in catching potential miscoding of transactions prior to year-end close.