Most construction owners can tell you their bank balance and their receivables total. Almost none can explain the difference between retainage receivable and regular AR, or why billings in excess of costs is a liability not income. These distinctions matter for bonding, banking, and understanding the true financial position of the business.
Retainage receivable is not current AR — it belongs in its own account. Retainage held by GCs is earned revenue that is not collectible until project completion. Regular AR is earned revenue that is collectible now. When they are in the same account the AR aging overstates what can be collected immediately. SPM separates retainage receivable into its own balance sheet account at engagement start.
Costs in excess of billings (underbilled) is a current asset. When you have done more work than you have invoiced the difference is an asset - revenue earned that has not been billed. Underbilled is not a problem in itself but it signals that pay apps need to be submitted. A large underbilled balance means significant cash is waiting on invoices you have not sent.
Billings in excess of costs (overbilled) is a current liability. When you have invoiced more than you have earned the difference is a liability - cash collected for work not yet complete. Overbilled appears as a current liability because it represents an obligation to perform work already paid for. Persistent overbilling can indicate front-loaded billing that will compress gross margin in later project phases.
Equipment at net book value understates replacement cost. The balance sheet shows equipment at cost minus accumulated depreciation. A fleet that cost $400,000 and has been depreciated to $120,000 over 8 years has a book value of $120,000. Replacement cost might be $550,000. Bankers and sureties know this and adjust their analysis accordingly. Keeping equipment well-maintained and current matters for the asset quality signal the balance sheet sends.
