Construction bookkeeping: everything you need to know

It also promotes sustainability and supports a positive image of the company. However, it is important to carefully assess the impact of cost-saving measures on project quality, Bookkeeping for Construction Companies safety, and compliance with regulations. Identifying potential issues early on can help construction companies take corrective actions to keep the project on track.

  • It enables companies to make informed decisions, improve financial performance, increase project efficiency, enhance customer satisfaction, and improve project planning.
  • This method is beneficial for ongoing projects that require tracking individual stages of work.
  • Regularly conducting these reports prevents budget overruns by projecting costs into the future, allowing proactive cost management.
  • Keeping track of payroll is another element where construction bookkeeping is essential.

Under a unit-price contract, the contractor bills a customer at a fixed price-per-unit rate. Typically, this will be useful if they aren’t able to estimate the unit production for the project with a lot of certainty. Unit-price billing is especially common among heavy-highway and utility construction companies. The financial reporting segment takes the same data from revenue management and compiles reports instantly for quick review. Under the financial management segment, you can make intercompany entries and manage workflows and content management. It allows adjustments to be made easily and can provide month-end and year-end reporting quickly.

How do you record construction expenses?

When you’re done with the preconstruction phase, you move into project management, operations and financials segments of the software that work concurrently. Overhead costs, which are essential for operation but not tied to a specific project, are listed on a separate area of the income sheet. Properly managing and allocating overhead expenses is crucial for contractors, as it directly impacts the company’s profitability and long-term financial stability.

Bookkeeping for Construction Companies

This can be automated with most modern accounting software suites, but even a paper calendar will help. Construction contracts are normally paid out on a schedule, as the project progresses, with a portion of it held back until completion. Based on the contract, schedule accounts payable as needed so that no accounts go overdue. This allows them to accurately estimate job cost and compare it to the actual cost, helping them determine profitability. Together, these two systems give a construction company a holistic view of its finances. Job costing helps maintain organization in the construction accounting process since the accounts related to individual projects are kept separate from the centralized accounts.


A business with a quick ratio above 1 is regarded as liquid, meaning that it has enough cash resources to pay its current liabilities. Conversely, a business with a quick ratio below 1 does not have enough cash resources, so it will need to get an influx of cash through financing or by selling other long-term assets. Examples of liabilities include accounts payable (AP), capital lease payable, accrued payables, and notes payable. Liabilities are a company’s financial obligations, which include both short-term and long-term debt.

  • Another peculiarity to be accounted for in construction is the practice of withholding retainage, or, retention.
  • Esub, a construction software company, explains that construction work is very little like retail or manufacturing, and that’s true down to the financial records.
  • Additionally, while a manufacturing company can produce and store items for later demand, a construction company can only begin production once a contract is signed and a project is underway.
  • Contractors operate their business primarily around projects with billing, production, or labor.
  • Equipment use and labor frequently move, which results in mobilization costs.
  • We turned to popular sites, including Trustpilot, G2 and Capterra, for these customer responses.

According to the Construction Financial Management Association, pre-tax net profits average between just 1.4% and 3.5% for contractors and subcontractors. In most industries, commissioned contractors get paid upon delivery of a product or service. The decentralized nature of the industry makes construction bookkeeping so unique. This can make it difficult to track revenue and costs on a single project, let alone many.

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Construction accounting is a specialized form of bookkeeping tailored to manage the financial aspects of construction companies, with a focus on individual project evaluation. It involves sophisticated methods, systems, and comprehensive reports to accurately gauge a company’s financial well-being. The primary objectives are to safeguard project budgets, track costs and revenue, reduce expenses, and ensure efficient project management. Financial reports like job cost reports, revenue recognition methods, and various statements help contractors make informed decisions, optimize project performance, and maintain financial stability.

Bookkeeping for Construction Companies

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