Bookkeeping for Construction Companies: An Essential Guide

So far in this construction company accounting guide, we have covered payrolls, billing, and revenue recognition. For long-term projects, the percentage of completion method recognizes revenue and expenses based on milestones achieved rather than the project’s completion. This method offers accurate financial reporting and ensures project costs align with revenue generation. Financial statements are a summary of a company’s financial transactions and include the balance sheet, income statement, and cash flow statement. The balance sheet shows the company’s assets, liabilities, and equity at a specific point in time.

Software and Tools for Efficiency

• Every transaction should be recorded, whether it’s for buying fuel for the company vehicle or receiving a large shipment of lumber.
• The reporting will enable you to track the profitability of each project so that you can stay ahead of costly mistakes.
• Allocating a portion of your income specifically for taxes helps avoid unexpected liabilities during tax season.
• Set limits, turn tracked time into automated timesheets, and send invoices with Hubstaff.
• Sage 300 is as comprehensive as it gets with prebuild reports; there are more than 1,400 to choose from.
• The main benefit of milestone payments is that you, as the contractor, don’t need to wait for payment until project completion.

This can make it difficult to track revenue and costs on a single project, let alone many. Construction bookkeeping, while challenging, is an essential part of running a construction company. We looked at third-party ratings and reviews to see how actual users felt about the software. The average threshold rating needed to be construction bookkeeping 3.5 stars or better to get the highest rating in our research. We turned to popular sites, including Trustpilot, G2 and Capterra, for these customer responses.

Construction Accounting and Bookkeeping Software

The platform starts with preconstruction details that include a cost catalog, lead management and a section for proposals and contracts. When you’re done with the preconstruction phase, you move into project management, operations and financials segments of the software that work concurrently. Construction companies have specific tax obligations that they need to comply with. Therefore, it is essential for construction companies to keep accurate records of all financial transactions and to file their taxes on time. A well-designed chart of accounts can help construction companies track expenses and revenue more accurately, which is essential for effective job costing. Working with a certified bookkeeper or accountant specializing in construction accounting can greatly benefit your business.

• It can also organize and pay bills for you, as well as collect payments and follow up on outstanding invoices.
• It’s helpful when you need to keep an accurate record of your progress and give stakeholders an idea of what to expect in the future.
• With hundreds of clever digital tools out there, it’s not advisable to keep an analogous schedule for a busy construction team.
• You’ll be able to get into the weeds with budget management tools that allow you to go from budget to change order requests instantly.

Income recognition

Now you have adopted the concepts regarding the most frequently used revenue recognition methods. This method is helpful because it allows the contractor to bill for the work as they go, especially when they have multiple ongoing projects. In most cases, the percentage-of-completion method works in stages or payment milestones. Unlike the previous method of recognizing revenue, the percentage-of-completion method allows contractors to recognize revenue as they earn it over time.

• Construction companies often face complex tax regulations, especially when operating across multiple jurisdictions.
• Union payroll for construction businesses involves wage calculation and management and other benefits for employees who work on union-affiliated projects.
• As it turns out, this makes all the difference in how a construction company does business.
• The average threshold rating needed to be 3.5 stars or better to get the highest rating in our research.
• You’ll also need to take into consideration things like taxes, travel pay, and union rates.
• To account for these expenditures, contractors typically reference them as pre-contract costs to prepare a job site before the contract implementation starts.

Tip 6: Choose the right revenue recognition method

• This means you can get any detailed report that you can think of with just a couple of clicks, helping you manage all the project costs.
• Construction accounting also includes the management of accounts receivable and accounts payable, cash flow, and the reporting of financial information.
• The system also allows you to scan and organize receipts so that all project expenses are kept in one place.
• Finally, you want to find a solution that you can customize if you have special reporting or processing needs.
• 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.

Once the costs have been categorized, monitoring https://www.inkl.com/news/the-significance-of-construction-bookkeeping-for-streamlining-projects expenses closely against the budget is important. This helps identify areas where costs are higher than expected, allowing for early intervention to prevent further overruns. It’s also important to look for areas where cost savings can be made, such as using more economical materials or reducing labor costs without compromising quality. By collaborating with them, you can free up your time and resources to focus on growing your business while they manage the financial aspects with precision and accuracy.

Under the cash method, you will record expenses as you pay them out, and income gets accounted for when payments are received. For the sake of simplicity, we present you with premiere construction accounting software alongside its best use cases. With that in mind, the following segment explores some of the best construction accounting software on the market.

How to Record Construction Expenses

In simple terms, this report categorizes the services or goods delivered but unpaid (by customers) since an invoice was sent to the customer at a single point in time. Accounts receivable are the legal claims for payment of those unpaid services and goods. For illustration, you can think of job costing as a powerful microscope that helps you take a closer look at estimated vs. actual production reports.