Robust project accounting systems help track and distinguish between capitalizable and non-capitalizable costs. For contractors, cost of goods sold (COGS) provides a vital glimpse into the profitability of a project over a specific period of time. Often referred to as “job costs”, COGS is best tracked through construction management software like Knowify.

Managing Every Aspect of Bookkeeping and Accounting for Construction and Contracting Businesses

Retainage is a common practice in the How to Use Construction Bookkeeping Practices to Achieve Business Growth 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 guide covers key aspects of construction bookkeeping, including the role of a construction bookkeeper, recording expenses, and industry-specific accounting methods. By mastering these practices, construction companies can gain better control of their financial performance and reduce inefficiencies in managing costs. In summary, financial reporting and analysis are critical for construction companies to understand their financial position and make informed decisions.

Managing Payroll and Expenses

This helps identify areas where costs are higher than expected, allowing for early intervention to prevent further overruns. It’s also important to look for areas where cost savings can be made, such as using more economical materials or reducing labor costs without compromising quality. Regular audits should be conducted by an internal or external auditor to ensure that the financial https://www.merchantcircle.com/blogs/raheemhanan-deltona-fl/2024/12/How-Construction-Bookkeeping-Services-Can-Streamline-Your-Projects/2874359 records are accurate and complete. Auditors should review the financial records, policies, and procedures to identify any weaknesses in the system of internal controls. Plus, you’ll have all the tools you need to stay on top of your construction accounting and make smarter financial decisions.

Managing Cash Flow in 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. A well-designed chart of accounts can help construction companies track expenses and revenue more accurately, which is essential for effective job costing. In general, a construction business with gross receipts (also known as Business Tax Receipts) over $10 million must use the percentage of completion revenue recognition method for tax purposes. A construction business with gross receipts under $10 million can use the completed contract method on construction projects that last less than two years. They’re only required to use the percentage of completion method for construction contracts that extend over two years.

Flex Time vs. Comp Time: What’s the Difference and Which Is Right for You?

See if you’re on track with the report designer that allows you to customize construction reports and financial statements. Conduct an audit of a project that will build a report easy for your certified public accountant (CPA) to digest and work from. Of course, if you want to make your life easier, construction accounting software like CrewCost will do a lot of the heavy lifting for you.

• Having robust retainage management becomes vital when managing multiple initiatives at one time.
• Robust project accounting systems help track and distinguish between capitalizable and non-capitalizable costs.
• This approach protects clients but can negatively affect cash flow for contractors.
• Whether you decide to do job costing manually or using software, the same steps apply.
• It’s also important to look for areas where cost savings can be made, such as using more economical materials or reducing labor costs without compromising quality.

The Forbes Advisor Small Business team is committed to bringing you unbiased rankings and information with full editorial independence. We use product data, strategic methodologies and expert insights to inform all of our content and guide you in making the best decisions for your business journey. By subscribing you agree to with our Privacy Policy and provide consent to receive updates from our company. Not everyone is cut out to be a bookkeeper or financial expert but software makes doing these things much easier today.