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Change Order: Definition and Meaning
Definition
A change order is a written modification to a contract’s scope, price, schedule, or other terms.
Why It Matters
For construction companies, timely identification and tracking of approved and pending change orders can affect job-cost information, billing, work-in-progress reporting, revenue recognition, cash flow, and project profitability.
The accounting and financial effects of a change order depend on contract terms, approval status, cost estimates, billing practices, and the applicable accounting framework. Management should coordinate estimating, project management, billing, and accounting records.
Example
A project owner approves additional work that increases the contract price and extends the completion schedule. That modification is documented through a change order.
Related Terms
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