Surety Company of the PacificOffering California
Contractors - License, Bid, Performance & Payment Bonds |
Business Financial StatementsThe Contractors financial condition is an extremely important part of the underwriting process. The business financial statements, consisting of the balance sheet, income statement, cash flow statement and other information, provide financial information that is necessary to determine the financial health of the company. The quality of the financial statements is critical in giving us an accurate picture of the financial health of a company. Below are listed some methods of accounting and the types of business financial statements. Cash Basis Method of AccountingCash basis financial statements are the simplest and least informative of all statements. The Balance Sheet only tells us what cash is on hand and usually only fixed assets and long term liabilities. The Income Statement only tell us what revenue was received and what expenses were paid. We do not see what other current assets or liabilities a contractor may have. Usually when we see cash basis statements the contractor’s financial picture looks terrible. The main reason is because the contractors Accounts Receivable and Payables are not shown and that is usually results in a significant asset. Accrual Method of AccountingAccrual based accounting comes in several forms. Simple Accrual and Percentage of Completion are the most common in construction. Simple accrual accounts for income as it is billed and expenses as the invoices come in the door. Percentage of Completion, by the way this is our preferred method of accounting, looks at income based on how much of the job is completed at the end of the month and how much cost have been incurred at the end of the month. In-house Financial StatementsFinancial Statements prepared by in-house accounting personnel using a variety of accounting programs are an important part of the contractor keeping track of their finances, however these in-house statements provide the surety with the least level of comfort when underwriting a bond request. An objective professional third party such as a CPA greatly enhances the credibility of the financial statements. Compiled Financial StatementsCompiled Financial Statements prepared by a Certified Public Accountant provide the surety with the basic assurance that the financial information has been looked at by the CPA and assembled into a typical construction format. Usually the CPA gives no assurance as to the accuracy of the information. Reviewed Financial StatementsReviewed Financial Statements prepared by a CPA give the surety a much better level of comfort in the accuracy of the financial information. The CPA during a review will review the information and perform spot checks to assure that the data is complete and accurate. In addition the CPA will add several additional documents to the statements such as Cash Flow statement, Work In Progress and detailed notes about the contractors operations and their financial situation. Audited Financial StatementsAudited Financial Statements provide the highest level of assurance that the data is complete and accurate. The CPA firm will review and check just about all of the financial information of the contractor and will issue a written statement that the info is accurate. These statements will provide the highest detail of the contractor’s financial health. |
Surety Company of the
Pacific |