Bookkeeping for Construction Companies: An Essential Guide

Maintaining a detailed record of all expenses is essential for successful financial management. In construction accounting, every expense, whether large or small, must be recorded accurately to provide a clear picture of your financial health. This helps you monitor project costs, manage your budget effectively, and ensure you have the right information for tax reporting. Construction bookkeeping services can assist in streamlining this process and ensuring that all expenses are properly documented. With larger and more complex projects, having precise data on the costs of labor, materials, and subcontractors is essential to determine profitability.

Track Every Expense:

Janet Berry-Johnson, CPA, is a freelance writer with over a decade of experience working on both the tax and audit sides of an accounting firm. She’s passionate about helping people make sense of complicated tax and accounting topics. Her work has appeared in Business Insider, Forbes, and The New York Times, and on LendingTree, Credit Karma, and Discover, among others. You can go to a bank or credit union to set up a company checking account that suits the needs of your firm. By subscribing you agree to with our Privacy Policy and provide consent to receive updates from our company.

• Apart from giving you insight into where your money is going, receipts also serve as proof of your business expenses in case you ever get audited.
• Whether through cloud-based systems or personalized support, professional construction bookkeeping simplifies operations and drives profitability.
• Job costing helps maintain organization in the construction accounting process since the accounts related to individual projects are kept separate from the centralized accounts.
• It involves tracking hours worked, calculating wages, managing benefits, and ensuring proper tax withholding and reporting.

Construction accounting FAQs

These experts possess in-depth knowledge and expertise in handling complex financial responsibilities such as job costing, payroll taxes, and reporting. 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. 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.

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The first set should cover information on the progress milestone met and reflect the total amount authorized for the services. This helps you get a better idea of how much money is coming in and going out of your business every month. First, break down the project into phases, and then list all the tasks needed to complete each phase. Apart from giving you insight into where your money is going, receipts also serve as proof of your business expenses in case you ever get audited. Construction companies usually need to pay their workers what’s known as a prevailing wage.

For contracting companies aiming to refine their bookkeeping practices or those looking to optimize their cash flow strategies, Ledger Management construction bookkeeping services stands ready to guide. With deep-rooted expertise in the construction sector, we understand the nuances and unique challenges you face. Based on the project’s necessary job types and activities, you’ll be paying varying rates. It’s important to pay attention to job costing, as it can allow project managers and supervisors to accurately budget for future projects and determine how to improve estimates.

What makes bookkeeping for construction companies different?

• It’s not uncommon for circumstances beyond your control to impact the price of materials, equipment, and labor costs.
• Invest in specialized construction accounting software to streamline processes, automate payroll, improve accuracy, and save time.
• This results in significant savings that directly contribute to higher profit margins.
• Construction companies often use this method for short-term contracts, especially those where contract costs can be hard to estimate.
• Yet, as the business grows, they start to realize that this is not a scalable solution.
• Assets are a company’s financial resources — in other words, anything that is cash or could likely be converted to cash.

Change orders often arise during construction, requiring real-time adjustments to project budgets. Accurate change order tracking ensures financial records reflect the project’s current scope. Navigating the financial ebbs and flows of construction projects demands a deep understanding of how to manage cash flow. Construction businesses record their revenues based on the accounting method that they use. For example, a company using the accrual method will note revenues based on billed payments even if they have not actually received payment. The purpose of retainage is to ensure that owners have some assurance that contractors complete the entire job rather than abandoning work after progress payments are made.

Set Aside Money for Taxes:

Embrace streamlined bookkeeping practices to improve efficiency and ensure financial success in your construction projects. Understanding each contract type and knowing which projects call for a certain type of contract will help construction businesses keep track of their costs and revenue more accurately. However, each contract type — in combination with the company’s chosen accounting method — will affect the business’s finances and accounting system.