What is Escrow?

Back Charges are bills sent to subcontractors or vendors for unforeseen work that a general contractor or project manager had to complete on their behalf within the construction industry. This generally occurs when the subcontractor or vendor fails to complete their work scope to the specified standards, misses deadlines, or omits parts of their contracted responsibilities, and someone else must step in to rectify the issue. Therefore, the party who had to complete or redo the work sends 'back charges' to the original contractor, expecting reimbursement for labor, services, materials, or other costs involved in the completion of the task. They serve as a form of financial protection for the companies against contractual breaches in the construction projects.

Overhead, in the context of the construction industry, refers to the general, ongoing expenses associated with managing a construction company or project that cannot be directly linked to individual construction jobs or projects. These expenses can include administrative costs such as office rentals, utility costs, support staff salaries, and costs associated with legal compliance, insurance, and marketing. Overhead also includes costs associated with maintaining and repairing equipment, employee training, travel expenses, and team benefits. These costs are necessary for the business operation but do not contribute directly to a specific project’s profit. A proper understanding and efficient management of overhead costs are essential to maintaining business profitability and competitiveness.

Single-Entry Accounting is a simple and basic form of accounting predominantly used by small businesses in construction and other sectors. Rather than double-entry bookkeeping, which records each transaction twice (as a debit and a credit), single-entry accounting records each transaction only once. It's essentially a record of cash sales and expenses, historically likened to a checkbook register. In the construction industry, this method might be used by small contractors or independent craftsmen who have relatively simple accounting. For instance, a freelance carpenter might use single-entry accounting to record cash received from clients and expenditures for supplies. However, it's crucial to note that while single-entry accounting may be simpler and less time-consuming, it does not provide as comprehensive a financial picture as double-entry accounting. It fails to track assets and liabilities and can make it challenging to produce financial statements. Therefore, it is most suitable for the smallest businesses within the construction industry.