Construction Accounting: Full Guide for Contractors 2024

We will cover everything from setting up a bookkeeping system to managing expenses and revenues, tracking job costs, and complying with industry-specific regulations. Invest in specialized construction accounting software to streamline processes, automate payroll, improve accuracy, and save time. These tools often include features for job costing, financial statements, progress billing, and WIP reporting. By following these essential tips, general contractors can maintain organized and accurate financial records, allowing them to make informed business decisions. Whether it’s tracking expenses, setting aside money for taxes, How to leverage construction bookkeeping to streamline financial control or preparing for growth, keeping your finances in order is key to success in the construction industry. For those looking for expert assistance, Meru Accounting offers specialized construction bookkeeping services to help manage your finances, ensuring that your business stays on the right track.

What Is Revenue Recognition?

The magic happens when our intuitive software and real, human support come together. Construction accounting relies on some key concepts to address some of the key differences from the general account. Construction accounting differs in accounting and other characteristics compared to other industries such as retail and manufacturing. Construction accounting is a specialized concept and usually requires technical accounting skills. Not everyone is cut out to be a bookkeeper or financial expert but software makes doing these things much easier today.

Construction Software For

• Establishing a solid foundation at the beginning of a project ensures that all aspects of the job are clearly defined, budgets are set accurately, and changes are managed effectively.
• Construction accounting software should offer comprehensive reporting tools that provide accurate insights into financial health, project performance, and operational efficiency.
• There are many software options available that are specifically designed for construction companies, such as QuickBooks for Contractors, Foundation Software, and Sage 100 Contractor.
• This invoice usually consists of a signed summary sheet and a statement of value detailing what has been completed and accounted for.
• This information allows for proactive management and adjustments, ensuring financial health and project success.

An accountant will help you make sense of the numbers, manage your books, generate reports, estimate your quarterly tax payments, maintain a healthy cash flow, and protect narrow profit margins. However, you can take a “completed contract” approach as well, which involves calculating taxes owed on each contract. A benefit of this approach is that you can track income, operating expenses, profit, and taxes on the micro-level so you gain a better understanding of where you stand on each construction project.

How is construction accounting different from accounting principles?

The average hourly rate for an accountant in the U.S. is about $35, making it quite affordable for the average owner. However, these rates may vary depending on the size of your company, the number of jobs and employees you manage, and your unique needs. You’ll also want to categorize these expenses by service, and by individual job so you can easily track how much money came in as well as how much you spent on expenses. Using an expense tracker and saving your receipts can help you keep track of all of your expenses and project profits on each job.

Job costing is critical for tracking the financial progress of construction projects. Construction accounting software should facilitate detailed job costing that can automatically allocate expenses by project, task, and material, allowing project managers to see exactly where money is being spent. This feature helps in identifying cost overruns early, ensuring that projects stay within budget and maintain profitability. CrewCost is a construction accounting software that solves all those problems for contractors. From job costing, WIP reporting, progressive invoicing, retainage and time tracking — you get everything you need to build a financially healthy contracting business in a modern, simple, and easy to use product. Retainage is a common practice in the construction industry where a percentage of the contract amount is withheld until the project is completed.

Regularly review WIP reports to track project progress, identify potential issues, and make informed decisions. These reports are crucial for managing project profitability and overall business performance. You can use that bank statement to reconcile your transactions to make sure they match up with your own accounting system, invoices, payments, etc. The following steps can help you get your construction accounting started on the right foot and help you stay on top of your bookkeeping and financial https://azbigmedia.com/real-estate/commercial-real-estate/construction/how-to-leverage-construction-bookkeeping-to-streamline-financial-control/ management.

Step 6: Generate financial statements

Another way of thinking about this method is — everything gets onto the income statement at one single point. On this difficult path, construction accountants need all the help they can get. For those who love hard work, spending time outside, and being your own boss, starting a landscaping business may be a great fit. Set limits, turn tracked time into automated timesheets, and send invoices with Hubstaff. The advantage of intuitive software is that you don’t need to spend time learning how to use it and can take advantage of all its features straight away. Opting for a solution that requires extensive training before you can use it is not only going to cost you time but also risk frustrating both you and your employees.

• In that case, they may decide simply to use another method for their own books as well.
• While you can prepare adjusting journal entries yourself if you’re comfortable doing so, we recommend working with an accountant or CPA to make sure your books are accurate and complete.
• The first—cash accounting—involves recording income when you receive it and expenses when they’re paid for.
• While cash accounting is the simpler of the two methods, accrual can give you a more accurate picture of your monthly revenue and expenses.
• Construction accounting software should help businesses maintain compliance with tax laws, labor regulations, safety standards, and financial reporting requirements.
• For the most part, businesses that are not project-based like construction, don’t have to worry about these concerns.
• Your contracts should include clauses to allow for variations, and these should state clearly what the anticipated costs might be with reference to the project and job costing.

Construction accounting is best aided by accounting software that connects the office to the site. As such the stage of completion is also used as a measure to measure the profitability of the project against the contract’s milestones. Although the above explains the fundamentals of construction accounting for the likes of builders, accountants and others, let’s take a quick look at some of the basic questions that get asked. This is all on top of requirements for processing payments as part of the Construction Industry Scheme (CIS), the rules for which have recently been adjusted. An experienced construction manager knows to anticipate and then manage what’s required.

• With accounting software, you simply enter the data and the software puts it where it needs to go.
• Proper job setup and maintenance are critical to the success of any construction project.
• Keeping all your company’s money in a single bank account makes it harder to understand how you’re doing financially because all the money in the bank account might not necessarily be yours.
• Before choosing a bookkeeping software, ask if they offer a free trial and use that time to get familiar with the way it works.
• Preferred by many construction contractors, the completed-contract method allows them to defer taxable revenue for the current year if the contract is set to be completed within the following tax year.
• Conversely, ‘deductive change orders’ involve removing elements from the original scope, lowering overall cost.

• First, break down the project into phases, and then list all the tasks needed to complete each phase.
• This lets them track transactions that impact the whole company’s financial picture.
• To ensure you aren’t surprised by a customer withholding part of the fee you’re owed, make sure you account for contract retainage properly when budgeting for a project and invoicing clients.
• CrewCost is a construction accounting software that solves all those problems for contractors.
• Standard accounting software is designed to manage financial transactions and operations within businesses and organizations.
• Similarly, in contrast to retail and manufacturing, production primarily happens across different jobsites rather than fixed locations like plants.

It essentially ensures that your service price covers all overhead expenses and helps ensure you make a profit on all of your construction projects. Your company may manage short- and long-term contracts, often with varying end dates. To stay on top of cash flow and keep your books in check, you will need a flexible yet organized construction accounting system. Procore is construction management software that can manage project costs from start to finish. It was created primarily for project managers, and allows for real-time changes. Here are eight of the best construction accounting software options available for small-to-medium-sized construction companies.