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Nevada Law & Business Details - Financial Management, Bonds & Insurance

Nevada Law & Business - Financial Management, Bonds & Insurance

Nevada Business & Law — Section 2: Financial Management, Bonds & Insurance

Use your NASCLA Contractor’s Guide — Nevada Edition. Tab and highlight the items in each panel. These show up repeatedly on the PSI exam: definitions, who is responsible, required documents, and deadlines.

1) Financial Statements & Monetary Limits Mark key pages

What to know

  • Monetary limit is set by the Board using your financials (working capital, equity, credit availability).
  • Financial statements (compiled/reviewed/audited) may be required depending on limit; know definitions of current assets, current liabilities, working capital, current ratio.
  • To increase the limit later: submit updated financials showing improved capacity.

Mark & Tab

  • Definitions list for assets/liabilities; formula boxes for working capital (= current assets − current liabilities) and current ratio (= current assets ÷ current liabilities).
  • Board criteria/thresholds language for setting/raising limits.
  • Evidence accepted with applications (financial statement type, prepared by whom).
2) Cash Flow, Job Costing & Recordkeeping Accounting fundamentals

Cash Flow

  • Bill timely (progress/milestones), track retainage, forecast inflows/outflows.
  • Keep a cash flow calendar for payroll, vendor due dates, tax deposits.

Job Costing

  • Track direct (labor, materials, subs) vs indirect (overhead) costs.
  • Code costs to phases (cost codes) to monitor profit and detect overruns early.

Records

  • Maintain bank reconciliations, AR/AP aging, change orders, timecards, certified payroll (if public works).
  • Retention durations: payroll, tax, job files (mark specific durations in your book).
3) Banking Practices & Project Funds Best practices
  • Separate business and personal funds; use job cost reports and monthly closing checklists.
  • Understand retainage and customer deposits; never misapply progress payments.
  • Use written change orders before performing extra work to preserve payment rights.
4) Insurance — General Liability, Auto, Workers’ Comp Compliance

General Liability (GL)

  • Covers third-party bodily injury/property damage claims.
  • Know per occurrence vs aggregate; endorsements like additional insured and primary & non-contributory.

Commercial Auto

  • Covers owned, hired, non-owned autos used in business.
  • Certificates often requested by owners/GCs.

Workers’ Compensation

  • Mandatory coverage for employees; obtain certificates from subs or classify them properly.
  • Penalties apply for failure to maintain WC; mark the compliance section.
5) Surety Bonds — License, Performance, Payment Purpose & differences
Bond TypeWho it protectsWhen usedKey points
License Bond Public/Consumers Required for state licensure (amount set by Board) Condition of licensure; amount may change with risk/limit; kept in force.
Performance Bond Project Owner Project-specific (often public works) Guarantees completion per contract terms.
Payment Bond Subs & Suppliers Project-specific Guarantees sub/supplier payment; reduces lien exposure.
  • Know that surety bonds are not insurance — the contractor indemnifies the surety for losses.
6) Risk Transfer & Certificates Owner/GC expectations
  • Typical contract provisions: indemnity, hold harmless, additional insured, waiver of subrogation.
  • Certificates of insurance: what they prove (and what they don’t). Endorsements must match contract.
  • Keep organized files: owner requirements, sub certs, bond riders, renewals calendar.
7) Taxes & Payroll Interfaces High-level
  • Track sales/use tax on materials where applicable (mark Nevada specifics in your book).
  • Coordinate payroll with job costing; verify classification of workers (employee vs independent contractor).
  • Maintain required tax filings and deposits calendar.

Practice Exam — 60 Questions Answers & brief explanations under each

1. The Board sets a contractor’s monetary limit primarily based on:

  1. Marketing budget
  2. Financial statements and capacity
  3. Number of employees
  4. Years in business only
Answer

B — Limit reflects financial responsibility.

2. Working capital equals:

  1. Assets − equity
  2. Current assets − current liabilities
  3. Total assets − total liabilities
  4. Cash + AR
Answer

B — Mark the formula box.

3. The current ratio is:

  1. Current assets ÷ current liabilities
  2. Total assets ÷ equity
  3. AR ÷ AP
  4. Gross profit ÷ revenue
Answer

A — Liquidity indicator.

4. To raise a monetary limit, the licensee should:

  1. Call the inspector
  2. Submit stronger financials for Board review
  3. Change entity name
  4. Buy new trucks
Answer

B — Updated financial capacity required.

5. Which statement is true about surety bonds?

  1. They are insurance for the contractor
  2. The surety expects reimbursement from the contractor for losses
  3. They cover design errors
  4. They replace WC insurance
Answer

B — Suretyship involves indemnity.

6. A license bond primarily protects:

  1. The contractor’s profits
  2. The public/consumers
  3. The architect
  4. The bank
Answer

B — It’s a condition of licensure.

7. A performance bond protects:

  1. Owner against non-completion
  2. Suppliers only
  3. Inspector
  4. Employees
Answer

A — Guarantees contract performance.

8. A payment bond protects:

  1. Owner against schedule delays
  2. Subcontractors and suppliers
  3. Designer
  4. City fees
Answer

B — Ensures subs/suppliers are paid.

9. GL insurance principally covers:

  1. Employee injuries
  2. Third-party bodily injury/property damage
  3. Design liability
  4. Equipment breakdown only
Answer

B — WC covers employee injuries.

10. Workers’ compensation coverage is required for:

  1. All vendors
  2. Employees
  3. Owners only
  4. Designers
Answer

B — Obtain certificates from subs.

11. Which document does not prove policy terms by itself?

  1. Certificate of insurance
  2. Policy declarations + endorsements
  3. Policy form
  4. Endorsement schedules
Answer

A — Certificates summarize; endorsements govern.

12. Bank account best practice:

  1. Mix personal and business funds
  2. Separate accounts; monthly reconciliations
  3. Record deposits annually
  4. Use only cash
Answer

B — Separation + reconciliation.

13. Retainage is typically:

  1. A late fee
  2. An amount withheld until milestones/completion
  3. Sales tax
  4. Insurance deductible
Answer

B — Withheld to ensure completion.

14. Job costing should track:

  1. Direct costs only
  2. Indirect costs only
  3. Direct and indirect costs
  4. Neither
Answer

C — Both feed profit control.

15. A common liquidity metric used by the Board is:

  1. Marketing ROI
  2. Current ratio
  3. Debt to equity
  4. DSCR
Answer

B — Current ratio is standard.

16. On public work, a payment bond reduces owner risk of:

  1. Scope gaps
  2. Subcontractor nonpayment claims
  3. Design defects
  4. Weather delays
Answer

B — Protects subs/suppliers.

17. Additional insured status is usually required by:

  1. Subcontractors for GC/Owner
  2. Vendors
  3. Employees
  4. Inspectors
Answer

A — Risk transfer up-tier.

18. A reviewed financial statement is prepared by:

  1. Insurance broker
  2. CPA with limited assurance
  3. Owner only
  4. Bank teller
Answer

B — Review = limited assurance; audit = reasonable assurance.

19. Which belongs in indirect costs (overhead)?

  1. Project concrete
  2. Crew labor for Job 102
  3. Office rent
  4. Job-specific permit fee
Answer

C — Office rent is overhead.

20. The entity is reimbursing the surety after a bond claim. This is:

  1. Insurance
  2. Indemnity typical of suretyship
  3. Warranty
  4. Subrogation
Answer

B — Contractor indemnifies the surety.

21. GL policy “per occurrence” means:

  1. Per employee
  2. Per claim event
  3. Per project
  4. Per month
Answer

B — Limit per covered event.

22. Sales/use tax tracking helps ensure:

  1. Lower bids only
  2. Compliance with state tax obligations on materials
  3. Bond approval
  4. Safety compliance
Answer

B — Mark your Nevada notes.

23. A COI mismatch with contract requirements should trigger:

  1. No action
  2. Request for corrected endorsements
  3. Lowering the bond
  4. Stopping payroll
Answer

B — Endorsements must match.

24. A compiled statement provides:

  1. No assurance
  2. Limited assurance
  3. Reasonable assurance
  4. Absolute assurance
Answer

A — Compilations = no assurance.

25. A contractor should obtain WC certificates from:

  1. Suppliers
  2. Subcontractors with employees
  3. Inspectors
  4. Owners
Answer

B — Verify subs’ WC coverage.

26. A job with high front-loaded costs needs:

  1. Less billing
  2. Faster progress billing and deposit planning
  3. No schedule
  4. Cash only
Answer

B — Manage cash flow.

27. The best early-warning report for overruns is:

  1. Social media
  2. Job cost report vs budget
  3. Weather feed
  4. Vehicle GPS
Answer

B — Compare costs to budget.

28. Payment applications should always:

  1. Exclude change orders
  2. Reflect approved change orders and retainage
  3. Ignore schedule
  4. Bill lump sum only
Answer

B — Accurate billing reduces disputes.

29. If a sub refuses to provide a COI meeting requirements, the GC should:

  1. Ignore it
  2. Hold subcontract until compliant
  3. Use owner’s policy
  4. Proceed and hope
Answer

B — Enforce risk terms.

30. Which document often lists required bond/insurance limits?

  1. Architect’s resume
  2. Contract/solicitation
  3. Timesheets
  4. Company handbook
Answer

B — Read the contract.

31. A debt-heavy balance sheet may:

  1. Increase limit automatically
  2. Lower assessed capacity
  3. Void license
  4. Change tax status
Answer

B — Higher leverage can limit capacity.

32. Proof of auto insurance for hired/non-owned autos is usually needed for:

  1. Office lease
  2. Jobsite deliveries and errands
  3. Tool rental
  4. Website hosting
Answer

B — Business use liability.

33. A bid requiring P&P bonds indicates the project is likely:

  1. Residential only
  2. Public or larger private
  3. Design-only
  4. Maintenance only
Answer

B — Common on public works.

34. The simplest way to improve current ratio:

  1. Increase current assets or reduce current liabilities
  2. Buy equipment
  3. Add long-term debt
  4. Extend payables indefinitely
Answer

A — Basic liquidity math.

35. Subcontractor default most directly threatens:

  1. GL limits
  2. Schedule and project cash flow
  3. Vehicle titles
  4. Audit fees
Answer

B — Causes delays and cash strain.

36. A certificate naming Additional Insured without the endorsement:

  1. Is fully adequate
  2. May be insufficient; endorsement governs
  3. Is better than the policy
  4. Replaces bonds
Answer

B — Endorsement is key.

37. Indemnification clauses typically shift risk to:

  1. The designer
  2. The contractor/subcontractor
  3. The bank
  4. The inspector
Answer

B — Contractual risk transfer.

38. A negative working capital means:

  1. More current assets than liabilities
  2. More current liabilities than assets
  3. No liabilities
  4. High profit
Answer

B — Liquidity concern.

39. Insurance audit discrepancies often arise from:

  1. Accurate payroll coding
  2. Misclassified labor and uninsured subs
  3. Posting safety signs
  4. Paying early
Answer

B — Classify and verify.

40. For materials purchased out-of-state and used in Nevada, the contractor should review:

  1. GL exclusions
  2. Use tax obligations
  3. Bond rider
  4. Lien waiver
Answer

B — Track use tax as applicable.

41. When a project owner requires specific limits, the contractor should:

  1. Ignore the spec
  2. Match or exceed the required limits
  3. Lower their own limits
  4. Cancel policies
Answer

B — Contract compliance.

42. A surety underwriter focuses on:

  1. Only marketing
  2. Financial strength, track record, capacity
  3. Landscape design
  4. Font choice
Answer

B — Capacity to perform & repay.

43. To prevent “profit fade,” a contractor should:

  1. Delay job cost posting
  2. Update cost-to-complete and revise forecasts regularly
  3. Ignore change orders
  4. Skip meetings
Answer

B — Continuous forecasting.

44. A bond claim due to contractor default may result in:

  1. No consequence
  2. Surety completing the project and seeking reimbursement
  3. Lower premium refund
  4. City paying
Answer

B — Surety seeks indemnity.

45. Which is a direct job cost?

  1. Office utilities
  2. Project materials
  3. Accounting software
  4. Corporate taxes
Answer

B — Direct to job.

46. A “reviewed” vs “audited” statement differs by:

  1. No difference
  2. Level of assurance (limited vs reasonable)
  3. Printer used
  4. Client logo
Answer

B — Know the tiers.

47. An umbrella policy:

  1. Is a bond
  2. Provides excess liability above underlying policies
  3. Replaces WC
  4. Is auto only
Answer

B — Excess coverage layer.

48. Change orders should be:

  1. Verbal
  2. Written and approved before extra work
  3. Ignored
  4. Priced later without notice
Answer

B — Protects payment and scope.

49. A contractor’s payroll records are important because they affect:

  1. GL limits only
  2. Insurance audits, taxes, job cost accuracy
  3. Owner’s landscaping
  4. Bond riders
Answer

B — Many compliance areas.

50. If the current ratio is below 1.0, the firm:

  1. Has more current assets than liabilities
  2. May struggle to meet short-term obligations
  3. Will always get bonds
  4. Has high profit
Answer

B — Liquidity warning.

51. Certificate management should include:

  1. No tracking
  2. Expiration tracking and endorsement verification
  3. Annual look only
  4. Owner sign-off
Answer

B — Track dates and forms.

52. Owners require “primary & non-contributory” to ensure:

  1. Sub policies pay first without sharing
  2. Lower retainage
  3. No bonds needed
  4. Tax credits
Answer

A — Priority of coverage.

53. Cash flow improves when:

  1. Billing lags work
  2. Billing matches milestones and change orders
  3. No schedule updates
  4. Ignore retainage
Answer

B — Align billing with work.

54. Proof of insurance from subs should be:

  1. Verbal
  2. COIs with required endorsements on file
  3. Self-attestation
  4. None
Answer

B — Keep documentation.

55. A contractor’s equity generally equals:

  1. Assets − liabilities
  2. Assets + liabilities
  3. Cash − payables
  4. Revenue − expenses
Answer

A — Basic balance sheet.

56. An insured’s failure to meet contractual insurance requirements can result in:

  1. Owner indemnifying contractor
  2. Breach of contract and risk exposure
  3. Automatic policy change
  4. Refund of premiums
Answer

B — Contractual non-compliance risk.

57. Cost codes allow you to:

  1. Hide costs
  2. Track costs by phase/trade for control
  3. Eliminate invoicing
  4. Replace budgets
Answer

B — Visibility to manage.

58. A bond premium is usually based on:

  1. Project color
  2. Contract amount and risk
  3. Owner’s logo
  4. Weather
Answer

B — Size and risk drive rates.

59. “Hold harmless” language is a form of:

  1. Safety training
  2. Indemnification
  3. Tax filing
  4. Lien waiver
Answer

B — Contractual risk transfer.

60. To verify that subs keep coverage in force, the GC should:

  1. Trust verbal promises
  2. Track expiration dates and request renewals
  3. Cancel the job
  4. Ignore until a claim
Answer

B — Maintain an active COI log.

Next: Section 3 — Business Organization →