Here are ten tips that can help to simplify and improve the way you handle construction bookkeeping. Here are six aspects of the industry that make effective construction bookkeeping vital. This can make it difficult to track revenue and costs on a single project, let alone many.

• As the name suggests, revenue and expenses aren’t recognized till the project is completed and all other obligations are met.
• The platform supports both cash-only and accrual accounting methods, giving you greater freedom to take on new projects while maintaining accurate financial reporting for all your projects.
• Using Hubstaff’s time tracking app for construction businesses, you can automatically generate time cards for your workers.
• The right software will help your team collect project data as they work, so you don’t need to spend time finding information and re-entering it into your accounting system.
• Proper expense categorization is crucial for accurate job costing and financial reporting.

Essential Features

It’s not just the new features you’ll use in your construction accounting software to consider. You also want a solution that seamlessly integrates with your existing stack of solutions. Think about software compatibility with existing tools, like CRMs or other project management software, as you evaluate your construction accounting software options. Under the completed contract method, you recognize revenue or expenses only when the project is completed or substantially completed.

Change Orders

Keeping good records helps protect against theft and embezzlement from within the company, because every dollar can be tracked back to a transaction. Construction companies either own their equipment or rent it for particular jobs. The costs of rental equipment will need to be factored in, as well as the invoicing due for obtaining it. Companies that invest in their own equipment need to include the maintenance costs of that equipment in their overhead How Construction Bookkeeping Services Can Streamline Your Projects estimation. This will involve the costs of administrative staff such as controllers, schedulers and accountants, as well as the salaries of any foremen or employees. It includes rent or mortgage for the facility owned by the company, as well as maintenance for their equipment.

• For instance, every construction firm aims to ensure each project is profitable, making accurate job costing critical.
• Contractor Foreman is not just built to simplify accounting for your contracting business.
• Change orders often arise during construction, requiring real-time adjustments to project budgets.
• It allows you to estimate labor, material, and overhead cost, as well as determine how much you should charge for the project.
• This reaffirms how important it is to account for all costs in a project regardless of whether the project makes or even loses money.
• Job costing tracks expenses on a per-project basis, offering a granular view of where costs are incurred.

Solutions

Each sheet has a comprehensive breakdown detailing job costs–materials and subcontractor fees. By consistently updating and reviewing these sheets, organizations can track budgets in real time, adjust resource allocation as needed, and forecast final project costs with improved accuracy. For instance, every construction firm aims to ensure each project is profitable, making accurate job costing critical. Additionally, since projects are often large and one-off, project leaders must get the numbers right from the start.

One thing that is undeniable is the importance of accurately tracking your numbers and evaluating those numbers to make better decisions. Use the right accounting method for your construction projects and be sure to job cost every job every time. Retainage is a common practice in the construction industry where a percentage of the contract amount is withheld until the project is completed. This approach protects clients but can negatively affect cash flow for contractors. Properly accounting for retainage is essential for accurate financial reporting and effective cash flow management.

• This method of revenue recognition allows you to recognize your gains and losses related to the project in every reporting period during which the project is active.
• It involves tracking and analyzing costs, managing project budgets, monitoring cash flow, and ensuring compliance with industry-specific regulations.
• This will ensure that you don’t end up with corrupted backups that you can’t use to recover your data.
• This will make it easy for you to send invoices online, track expenses, monitor payment status, generate financial reports, and more.
• By creating separate accounts for each project, bookkeepers can track project-specific expenses and budgets with greater accuracy.
• This means wages and working conditions are often determined through collective bargaining agreements, which require companies to report wages and other details to each union for verification.

This method of revenue recognition allows you to recognize your gains and losses related to the project in every reporting period during which the project is active. 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. You should also add your income and expenses from each project into a general ledger to get an accurate overview of your gross and net income. Whether you decide to do job costing manually or using software, the same steps apply.

• Under regular business accounting circumstances, revenue recognition is simple because they sell a product or service and collect a fixed price right away.
• Accounting is said to be the language of business, as it tells the story of how well your business is doing financially.
• Implement systems to ensure invoices are sent promptly and accurately reflect the work completed.
• For construction projects to stay profitable and have good financial management, it’s important to keep track of the cost of goods sold (COGS).
• Contractors are reimbursed for project costs–labor, materials, and equipment along with a pre-determined profit margin.

Construction Bookkeeping Best Practices

Although cash accounting is flexible and accessible, you must fit certain criteria set out by the IRS in order to use this method. To be eligible for the cash method the IRS states that your construction company must have less than $25 million in gross receipts (over a three-year period). As a result, WIP reports are a powerful tool for fostering precision with your numbers. For a deeper look at WIP and its impact on accounting for construction check out our article on “Everything you need to know about WIP”. To help you make more profitable decisions and get smarter about financial management, Knowify has put together 5 construction accounting tips and best practices for contractors. The main difference between construction accounting and general accounting is that construction accounting is project-based.