Construction Accounting 101: A Simple Guide for Contractors

By reviewing your cash flow regularly, you How to leverage construction bookkeeping to streamline financial control can ensure there are sufficient funds to meet current and future expenses. Construction bookkeeping services can help in setting up systems to track income and expenses efficiently, providing timely reports to help you stay on top of your finances. That leaves contractors and construction accountants with a choice of revenue recognition method.

Income statements

However, not all specialize in construction accounting — but rather standard or regular accounting. Construction accounting deals with long-term, flexible contracts with a ton of irregularities — in comparison to other sectors, like retail. Construction companies often face complex tax regulations, especially when operating across multiple jurisdictions. One of the most significant challenges in construction is dealing with fluctuating material and labor costs.

How to choose the right construction bookkeeping software

These are called ‘additive change orders’ and typically increase the contract price. To address this problem, some construction contracts include fluctuation provisions. Furthermore, construction firms must comply with local wage scales and regulations at each site. This might involve sourcing materials and machinery from nearby vendors to optimize efficiency and meet local requirements. There is a lot of construction software out there for today’s construction firms to choose from. Ideally, a construction software that automates some – or all – of your bookkeeping would make running your business a lot easier.

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This may be relevant for larger companies that have multiple projects that they manage https://www.inkl.com/news/the-significance-of-construction-bookkeeping-for-streamlining-projects simultaneously and need to create comprehensive reports and cash flow data for stakeholders. Both plans allow you to track income and expenses, send invoices and accept payments and maximize your tax deductions with tagging features for expenses. The system also allows you to scan and organize receipts so that all project expenses are kept in one place. The reporting will enable you to track the profitability of each project so that you can stay ahead of costly mistakes.

• And if it’s mistakenly paid to each state they worked in, contractors shouldn’t expect to be contacted for a refund.
• While other industries use billing methods like point-of-sale billing, construction payments are more long-term, yet decentralized and based on milestones.
• Payroll also often includes a variety of bonuses, benefits, and other incentives, such as overtime pay or extra pay for hazardous working conditions.
• And while private companies don’t have a formal obligation to use GAAP, many choose to follow its best practices.
• The construction industry is highly susceptible to political and economic fluctuations that disrupt the supply chain.

Tip 6: Choose the right revenue recognition method

Each construction accounting method provides valuable insight into a project’s financial impact that helps ensure projects stay on track, on budget, and succeed. When choosing the right accounting method, you should consider your business’s unique needs and objectives. Finally, you want to find a solution that you can customize if you have special reporting or processing needs.