Florida General Contractor Practice Exam

What does the term "earned income" generally refer to in construction contracting?

1. Income received for completed contracts

2. Estimates for future earnings

3. Accrued revenue still pending payment

4. Income recorded for projects not yet started

The correct answer is: Income received for completed contracts

The term "earned income" in construction contracting specifically refers to the income received for completed contracts. In the context of construction, this means that the contractor has fulfilled their contractual obligations, and payment is made for the work that has been successfully carried out. This income is recognized as earned when the work is complete, reflecting the contractor's active engagement in the provision of services or delivery of goods that meet the contract specifications. When a contractor completes a project, they typically invoice the client for the work done, and once payment is received, that income is classified as earned. This helps in accurately reflecting the financial health of the business and ensuring proper cash flow management. The other choices pertain to different aspects of financial reporting or forecasting. Estimates for future earnings represent projections rather than actual income. Accrued revenue pending payment signifies amounts recognized as revenue but not yet received, which does not classify as earned until payment is made. Income recorded for projects not yet started is purely speculative and does not qualify as earned income, as no work has been performed yet to warrant payment.