9.1 Managing Accounts Receivable

9.1 Managing Accounts Receivable

Business & Finance Area D (Conducting Accounting Functions) is 32% of the 120-question B&F exam — the heaviest B&F domain, about 38 scored items. This section is manage accounts receivable: accounting principles, mathematics, computer skills, and lien laws. Section 6.2 taught you how to assemble a G702. This section teaches how those same dollars live on the books, how they age, and how Chapter 713 is a collection tool whose clocks do not match invoice aging. The open-book sources are Builder's Guide to Accounting (2001) and the Contractors Manual 2025 (the listed B&F edition beginning February 1, 2026), plus Florida Chapter 713 as taught through those references.

Why AR is a current asset, not cash

Accounts receivable (AR) are legally enforceable amounts customers owe for work billed but not yet collected. On the balance sheet they are current assets if collection is expected within one year — the usual case for residential changeouts, service invoices, and most commercial HVAC contracts. They are not cash. A shop can be profitable on the income statement and still miss payroll if AR sits at 60 and 90 days while technicians are paid weekly and the supply house is on net 30.

The qualifying agent owns this. F.S. 489.1195 makes every primary qualifying agent jointly and equally responsible for financial matters unless a Financially Responsible Officer (FRO) is appointed. Uncollected AR that turns into judgments, or construction liens that land on the contractor's credit report, collides with Rule 61G4-15.006 (no unsatisfied judgments or liens; FICO-derived 660). Area D is how you keep the certificate, not how you decorate a trial balance.

Accrual versus cash, and three methods the exam mixes up

Cash-basis accounting records revenue when the check clears. Builder's Guide to Accounting treats cash-basis as inadequate for a contractor who needs job cost, retainage, and surety statements. Accrual records the receivable when you have billed (or, under percentage of completion, when you have earned) and records payables when the vendor invoice is a liability — whether or not cash has moved.

Do not confuse how you bill with how you recognize revenue.

A Class B shop replacing a 3-ton split in a Tampa bungalow can invoice on completion, collect by card, and use completed-contract without distorting the statements. A Class A shop installing a 40-ton packaged unit (over the Class B 25-ton / 500,000 Btu per-system cap in F.S. 489.105) on a four-month medical-office job must progress-bill for cash and should recognize revenue on POC so the income statement matches work in place. Class B candidates still need the theory even when the Class B outline drops 25–100 ton installs. You can progress-bill while using either revenue method. The difference between cumulative billings and earned revenue is overbilling or underbilling.

Cost-to-cost POC:

POC = costs incurred to date ÷ current total estimated cost

Earned revenue = POC × contract price (including approved change orders)

Earned gross profit = earned revenue − costs to date

Worked example — Gulf Breeze Mechanical, certified Class A, lump-sum $250,000 to replace a 30-ton rooftop and associated duct on a private Okaloosa County office (Class A work). Original estimated cost $190,000. To date: costs $95,000. The estimator now forecasts $200,000 total cost because of extra curb steel.

POC = 95,000 / 200,000 = 47.5%

Earned revenue = 0.475 × 250,000 = $118,750

Earned gross profit = 118,750 − 95,000 = $23,750

If the shop has billed $150,000 of progress billings:

Billings − earned revenue = 150,000 − 118,750 = $31,250 overbilling

That $31,250 is a current liability: billings in excess of costs and estimated earnings. It is not a bonus. The owner has paid, or been asked to pay, faster than the books have earned. Chronic overbilling — front-loading the schedule of values, billing stored equipment that is still at the vendor, inflating percent complete — produces cash today and a hole later. Sureties read it as a red flag, and it is how a Chapter 489 complaint starts when the job stalls.

Flip the billing number. If the shop has billed only $90,000:

Earned revenue − billings = 118,750 − 90,000 = $28,750 underbilling

That amount is a current asset: costs and estimated earnings in excess of billings (unbilled receivables). You have financed the owner. Underbilling is why a busy June of Florida changeouts can still bounce a payroll ACH.

Completed-contract on the same 30-ton job would park the $95,000 in construction in progress (an inventory-like asset) and park billings as a liability until substantial completion, then recognize the whole profit at once. That is acceptable for a two-day 4-ton changeout. On a four-month 30-ton job it hides true AR and true profit in the months Area D is testing.

Recording the invoice: trade AR versus retainage receivable

When you bill, do not debit one lump called receivable if the contract withholds retainage. Retainage is still money you have earned the right to collect later; it is a receivable, not an expense and not a reduction of revenue.

Worked posting — same $250,000 job, 10% retainage, this month's certified billing $40,000:

• Debit Accounts receivable — trade $36,000
• Debit Retainage receivable $4,000
• Credit Progress billings (or contract revenue, depending on the worksheet) $40,000

Trade AR is what you expect from this draw after retainage. Retainage receivable sits until punch list and final payment. Keep it a current asset if final payment is expected within a year; classify it long-term only if the contract truly withholds it beyond twelve months. Do not dump retainage into this week's cash forecast as if it were collectible Friday.

On private Florida jobs, retainage is contractual — 10%, 5%, a step-down, or zero; there is no statewide cap. On public construction services of more than $200,000, F.S. 255.078 (state) and F.S. 218.735 (local governments) cap retainage at 5% of each progress payment (federal grantor rules can override). Public property is not lienable; unpaid balances go against the F.S. 255.05 payment bond, not a Claim of Lien on the school board's land.

When the owner pays the $36,000 draw: debit Cash $36,000, credit Accounts receivable — trade $36,000. Retainage receivable does not move. When final payment includes accumulated retainage of, say, $25,000: debit Cash $25,000, credit Retainage receivable $25,000.

Aging AR: the computer report the exam expects you to read

Computer skills on Area D mean you can run and interpret an AR module, not that you must name a brand of software. The AR file holds the customer, the job number, invoice date, due date, retainage flag, and payment applications. The report that matters is the aged trial balance.

Worked aging — June 30 trial balance for a Broward County Class B shop (all systems at or under 25 tons):

Aging is not the lien clock. Chapter 713's 90-day Claim of Lien deadline runs from final furnishing, not from invoice date and not from days past due on the computer. Plaza GC's retainage can look current on an aging because it was never due yet, while the 90-day statute is already running from May 20. Final furnishing May 20 + 90 days = August 18. Miss that recording date and the best aging report in the shop will not revive the lien.

Allowance for doubtful accounts is a contra-asset. If history says 2% of trade AR over 90 days will never clear, and 91+ is $4,800, a $96 allowance is the matching entry (debit bad-debt expense, credit allowance). Direct write-off — waiting until the account is hopeless, then debiting expense — is simpler and common in small shops. Builder's Guide still wants you to know the allowance method because it matches expense to the period of the sale. Do not keep a dead café invoice in AR just to inflate current assets for a bank.

Florida lien rights as AR collection tools

Chapter 713 is a full later chapter. Area D tests it as how you collect AR.

If you are the direct contractor in privity with the owner, you generally do not serve a Notice to Owner (NTO). Your collection path is: keep billing, then record a Claim of Lien not later than 90 days after final furnishing (F.S. 713.08(5)), serve a copy on the owner before recording or within 15 days after recording (713.08(4)), serve the contractor's final payment affidavit at least 5 days before suit (713.06(3)(d)), and sue within 1 year of recording (713.22) unless a Notice of Contest or summons to show cause shortens it.

If you are an HVAC subcontractor or supplier not in privity, you must serve an NTO before commencing or not later than 45 days after commencing to furnish (F.S. 713.06(2)(a)). Failure is a complete defense to the lien. Laborers are excepted from the NTO prerequisite. Then the same 90-day Claim of Lien clock runs from your final furnishing.

Notice of Commencement (F.S. 713.13) is the owner's recorded starting document; read it so the NTO goes to the right owner and lender addresses. Public jobs: no lien on the property; look to the 255.05 payment bond and its own notice clocks. Mixing a Claim of Lien cover letter with a school-board job is a free miss.

Lien rights do not replace ordinary collection. They are the statutory backstop when aging, statements, and credit holds fail. Computer skill: code the final-furnishing date on the job, not just the invoice date, so the 45- and 90-day clocks appear on a tickler. A 60-day aging that looks not that bad can be a job that finished 80 days ago. You have 10 days to record, not 30 days to send another statement.

Florida HVAC scenario

Suncoast Air, qualified by a certified Class A agent, is in privity on a $180,000 private Sarasota medical build-out (one 35-ton unit — Class A). POC is 60% ($108,000 earned). The PM has billed $130,000 with 10% retainage, so the latest unpaid $30,000 draw sits as $27,000 trade AR plus $3,000 of this month's retainage, and cumulative retainage receivable is $13,000. Aging shows the $27,000 at 35 days. The owner is waiting on the lender. Final furnishing of the HVAC scope is already 50 days ago because start-up is done and extra-work POs are in dispute.

The books correctly show $22,000 of overbilling (130,000 − 108,000) as a liability — the PM front-loaded equipment. Collection is not send a nastier invoice. It is: (1) stop overbilling the next G702, (2) treat retainage as a receivable that is not cash, (3) calendar 90 days from final furnishing for a Claim of Lien because Suncoast is in privity (no NTO), (4) serve the claim copy within 15 days of recording, and (5) do not sue until the final payment affidavit has been delivered at least 5 days prior. If this were a public school over $200,000, retainage would have been capped at 5%, and the remedy would be the 255.05 bond, not a lien on district land.