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Swimming Pool Servicing Contractor/Business & Finance

Financial Management & Accounting

20% of this exam

The heaviest domain on the exam (about 20%) and the most calculation-driven. It tests whether you can read contractor financial statements, run job costs, recognize revenue on long jobs, and compute the ratios sureties use to size your bonding capacity.

Core concepts

Percentage-of-completion is the contractor method

Long-term jobs recognize revenue as costs are incurred: percent complete = costs to date ÷ total estimated costs; revenue earned = that percentage × contract price. Billings are separate — the gap between billings and earned revenue is over- or underbilling.

Overbilled is a liability, underbilled is an asset

Billings in excess of costs and estimated earnings = liability (you owe work). Costs in excess of billings = asset (you're financing the owner). The WIP schedule lays this out job by job.

Direct costs vs overhead

Direct costs trace to one job (materials, job labor, subs). General overhead (office rent, estimator salaries) must be recovered through markup — and markup on cost is not the same as margin on price.

Three ratios rule

Current ratio = CA ÷ CL. Quick ratio strips inventory. Working capital = CA − CL. Sureties read these before writing your bonds.

Key facts to know cold

% complete (cost-to-cost)Costs to date ÷ total estimated costs
Quick ratio(Current assets − inventory) ÷ current liabilities
Working capitalCurrent assets − current liabilities
Price for target marginCost ÷ (1 − margin) — not cost × (1 + margin)
Break-even revenueFixed costs ÷ contribution margin %
Straight-line depreciation(Cost − salvage) ÷ useful life

See it drawn out

Fig — Margin vs. markup — the costliest mix-up
  1. Markup
    Price = cost × (1 + markup) → $80,000 × 1.20 = $96,000

    Markup is a percentage of COST.

  2. Margin
    Price = cost ÷ (1 − margin) → $80,000 ÷ 0.80 = $100,000

    Margin is a percentage of PRICE.

  3. The trap
    A 20% markup is only a 16.7% margin

    Bid with the wrong one and the difference comes straight out of profit.

Fig — Percentage-of-completion (cost-to-cost)
  1. Step 1 — percent complete
    Cost to date ÷ total estimated cost = $300,000 ÷ $600,000 = 50%
  2. Step 2 — revenue earned
    Percent complete × contract price = 50% × $800,000
  3. Answer
    $400,000 revenue recognized to date

    Revenue follows progress — not billings, and not cash received.

Where it lives in your books

The real exam is open book. Knowing which book — and which tab — answers this domain is worth as much as memorizing it.

manual

Builder's Guide to Accounting

Calculation questions come straight from this book's methods. Tab the ratio formulas and the percentage-of-completion chapter, and bring a calculator you know.

8 recommended tabs

Lookup strategy

  • · Tab the ratio formula pages — verifying a formula takes 20 seconds and rescues shaky arithmetic.
  • · For calculations, write the formula from the book first, then plug numbers. Distractors are built from skipped steps (forgetting salvage value, inverting a ratio).

Reading isn't learning — retrieval is.

36 questions in this domain, each with an explanation and source.