How to Do Bookkeeping for Construction Companies

Many small business owners begin by tracking transactions through an Excel spreadsheet. Yet, as the business grows, they start to realize that this is not a scalable solution. One way to solve this problem is to use accounting software like QuickBooks Online because it automates the bookkeeping process. By understanding these construction accounting basics and implementing best practices, you can better manage your construction business’s finances, ensure compliance, and drive profitability. Remember, effective construction accounting is not just about number-crunching and financial statements–it’s a powerful tool for informed decision-making and business growth. Accurate cost tracking is essential for job costing and profitability analysis.

Contract revenue recognition

• Notably, a business does not want to have a quick ratio that is too high, which indicates an excess of cash that could be more prudently invested.
• Accurate bookkeeping for construction companies is crucial because it facilitates efficient project cost management, expense monitoring, cash flow maintenance, and compliance with tax laws.
• Contractors often encounter significant gaps between projects, adding to the intricacy of financial management.
• To create accurate financial statements, construction companies need to maintain detailed records of their financial transactions.
• In this case, a construction accountant’s job would be to oversee how, when, and where money is spent, among other things.

If you decide to hire an accountant, look for one with experience in your industry because they’ll know how to handle your company’s accounting needs most effectively. Hiring an accountant to take care of your bookkeeping can save you a significant amount of time, as well as eliminate bookkeeping and accounting errors. 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. Some of it is likely reserved for things like payroll, covering expenses, and paying taxes.

Use Job Costing

Instead, retainage is tracked in separate accounts on the general ledger, typically called retention receivable and retention payable. Once the retained funds are due to be released, the amounts are transferred to accounts Catch Up Bookkeeping receivable or payable. Cash accounting is the simplest and most straightforward approach to tracking finances, but it’s also the most limiting.

Accounting Used in Construction Business

• The income statement shows the company’s revenue and expenses over a period of time, and the cash flow statement shows the inflows and outflows of cash during that period.
• Taxes are incredibly complex, so we may not have been able to answer your question in the article.
• From personalized bookkeeping engagements to holistic CFO partnerships, we’ll help you find the construction accounting service that’s right for your business.
• While it draws on all the same basic principles of traditional accounting, it also has several important and distinct features.
• However, bookkeeping for construction companies can be complex and challenging.
• This cloud-based solution has a base of user interface (UI) customizations, custom workflows, search tools and collaboration features.
• Together, these documents are considered an “application” for payment because the recipient will have a chance to review the schedule of values and either accept or dispute the billed amount.

Consistently generating these reports allows contractors to make informed financial decisions and adjust project strategies if needed. Construction bookkeeping services like software make expense recording easier, though some opt for recording bills in a comprehensive journal. Regardless of your method, documenting materials, job costs, accounts receivables/payables, and other daily transactions is crucial to proper bookkeeping. To create accurate financial statements, construction companies need to maintain detailed records of their bookkeeping for construction companies financial transactions. They should also use accounting software that can generate financial statements automatically.

• One common construction billing format is known as AIA progress billing, named after the American Institute of Architects, which produces its official forms.
• Balance sheets, income & cash flow statements are just some of the financial reports we prepare as part of our financial reporting services.
• The cost management component factors in labor and equipment costs along with needed materials and subcontractor bids.
• That being said, it’s not possible to automate the entirety of your bookkeeping and accounting process.
• One way to solve this problem is to use accounting software like QuickBooks Online because it automates the bookkeeping process.

Construction companies also have to watch that they don’t overpay on unemployment tax normal balance when an employee works in multiple states. Chiefly, this can be a problem where an employee resides in one state and works in another. When states have a reciprocity relationship, however, the worker’s state of residence may issue credit for taxes paid on income earned out of state.