Bookkeeping for Construction Companies: The Ultimate Guide

Across the construction industry, average working capital turnover ranges from 5 to 15 depending on specialization. The current ratio evaluates how readily a company can use its current assets to cover its current liabilities. Importantly, the income sheet’s view of profit must match the change in equity reflected on the balance sheet.

Hire an Accountant (Optional)

The balance sheet shows the company’s assets, liabilities, and equity at a specific point in time. 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. One effective way to track expenses is to use accounting software specifically designed for construction companies. Programs such as Sage 100 Contractor and ProContractor by Viewpoint can help with everything from job costing to managing purchase orders. These programs can also help with tracking expenses by project, which can be especially useful for larger construction companies. Construction companies have unique accounting needs that require specialized bookkeeping practices.

Expense Tracking and Management

• Once the retained funds are due to be released, the amounts are transferred to accounts receivable or payable.
• Upon project completion, the CIP balance is reclassified to a fixed asset account, formally designating the asset as operational.
• By mastering these practices, construction companies can gain better control of their financial performance and reduce inefficiencies in managing costs.
• Consider the cost of insurance, travel, workers’ compensation, materials, subcontractors, equipment, and more.
• Consider hiring a bookkeeper with experience in construction accounting to ensure accuracy and compliance with industry standards.
• Understanding the different billing methods keeps you aware of new regulations or changes to existing industry standards that may impact your bottom line or your customer’s invoice.

Contractors and real estate developers use GAAP construction accounting to  increase their financial accountability and provide valuable peace of mind to customers. Improving your process starts with understanding how construction accounting is unique, and determining the different types of job costs you can incur on each project. 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. Monitoring federal and state tax amendments and understanding property tax implications are crucial.

Back Up Records Digitally

Before choosing a bookkeeping software, ask if they offer a free trial and use that time to get familiar with the way it works. On the How to leverage construction bookkeeping to streamline financial control other hand, if it’s super easy to use but doesn’t provide the flexibility you need, you should consider trying a different one. 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.

• Construction accounting software can help in tracking and allocating these costs effectively.
• This process is critical for ensuring that every expense—whether it’s for labor, materials, equipment, or subcontractors—is accurately recorded and attributed to the correct job.
• This can help you to stay competitive in the market, meet the growing demands of clients, and achieve your business goals more effectively.
• Construction accounting also includes the management of accounts receivable and accounts payable, cash flow, and the reporting of financial information.
• One effective way to track expenses is to use accounting software specifically designed for construction companies.
• Because programs scan receipts and invoices and make them immediately available, a lot of entry work gets done automatically.

Handling your own accounting and bookkeeping might seem feasible, but it’s often time-consuming and complex. The construction industry demands a deep understanding of specific bookkeeping rules, which can quickly become overwhelming without proper expertise. Your journey through the maze of construction bookkeeping doesn’t have to be solitary. With the right tools and support, like XOA TAX, you can focus on growing your business while we handle the intricacies of bookkeeping. Say goodbye to manual processes and embrace a streamlined, stress-free financial management system. Systematic bookkeeping does more than just prepare you for potential audits by tax authorities.

Construction Contract: Types, Elements, and Tips

Under this method, clients are billed for actual labor hours worked and materials used, plus a markup for overhead and profit. Additionally, they will ensure that the construction company complies with all regulations. Now that you know how company accounting is different, let’s get into the nitty-gritty of accounting for contractors. 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 https://www.inkl.com/news/the-significance-of-construction-bookkeeping-for-streamlining-projects an expense tracker and saving your receipts can help you keep track of all of your expenses and project profits on each job. Revenue recognition is how a a business determines when they’ve officially earned revenue from a contract or project.

Another key benefit of cloud-based solutions is that they provide seamless mobile access for on-site teams. This enables them to access project information and communicate with other team members from anywhere. This can improve collaboration and ensure everyone is on the same page, regardless of location.