Construction Bookkeeping: A Comprehensive Guide for Contractors

Construction accounting is a unique form of bookkeeping and financial management. It’s designed specially to help contractors track each job and how it affects the company as a whole. While it draws on all the same basic principles of traditional accounting, it also has several important and distinct features.

Setting up a Construction Bookkeeping System

The construction industry is highly susceptible to political and economic fluctuations that disrupt the supply chain. Things can happen beyond your control to destabilize your cash flow, such as bad weather conditions or a piece of equipment breaking down. Bridgit Bench is the #1 workforce planning software built for the construction industry. Our mission is simple — help contractors streamline operations and navigate workforce planning complexities. Founded in 2014, Bridgit provides seamless planning workflows, unmatched workforce visibility and precise labor forecasting to drive efficiency and planning effectiveness. While bookkeeping in the construction industry can be challenging due to its many considerations, it’s an essential part of successfully running a construction firm.

Select Revenue Recognition Methods

• If you want to build a solid financial foundation for your construction company, take some time to learn the basics of construction bookkeeping.
• Due to standardized invoicing, tried-and-tested practices, and the language used, AIA billing can speed up payments and reduce the margin of error.
• Using milestone payments also makes it easier to identify payment problems, which, in turn, enables you to stop working until you receive payment for a milestone.
• It allows you to estimate labor, material, and overhead cost, as well as determine how much you should charge for the project.

Consistently generating these reports allows contractors to make construction bookkeeping informed financial decisions and adjust project strategies if needed. Ideally, each of your financial accounting processes should work together seamlessly as a part of a larger system. A construction accounting software makes this level of integration simple, so you can keep track of everything and enable more informed decision-making as time goes on.

What type of accounting is used in construction?

Here are some things to keep in mind when bookkeeping for construction firms. It would also benefit your company to automate as much of its bookkeeping as possible. Not only does automation save you time, but it also reduces errors and saves you money in the long term. Whichever method you choose, have the systems and processes set up to produce the required data.

Unit Price

• According to revenue standards, the contractor doesn’t have a current, unconditional right to the retainage portion of an invoice.
• Billing a fixed-price contract often happens on a percentage-of-completion basis with retainage withheld.
• Dave Nevogt is an American entrepreneur and the co-founder of Hubstaff, a workforce management software company.
• Revenue recognition and retainage practices track with long-term contracts paid over time.

It will ensure you have capital in the event that a customer withholds money owed. It’s not uncommon for circumstances beyond your control to impact the price of materials, equipment, and labor costs. The percentage of completion method allows you to recognize revenue as a percentage of the work your company completed during a period. This bookkeeping tip for contractors makes it easier to stay on top of how https://www.bignewsnetwork.com/news/274923587/how-to-use-construction-bookkeeping-practices-to-achieve-business-growth much money is coming and going out of your business monthly. By addressing these challenges proactively, construction companies can streamline their bookkeeping processes and focus more on delivering successful projects. Prevailing wage legislation requires contractors to pay the rate of compensation that’s standard, or “prevails,” for each worker classification on similar jobs in the area.

• Construction companies are very specialized, and most accounting software provides essential bookkeeping services.
• Unfortunately, it’s not as simple as agreeing on compensation with a worker and paying them the same rate per project.
• Yet, some states have a reciprocity relationship (such as the case of Virginia).
• The construction industry’s bookkeeping system must be tailored to its needs, considering all the variables that come into play with each job.
• Construction companies often face complex tax regulations, especially when operating across multiple jurisdictions.
• If your construction business follows generally accepted accounting principles, you should use the percentage of completion method for financial statements as well.