Construction Bookkeeping: Essential Tools & Tips

Construction bookkeeping presents unique challenges that can complicate financial management. Understanding these hurdles and how to address them can significantly improve accuracy and efficiency. Tracking these costs separately helps bookkeepers identify discrepancies early and maintain control over the budget.

Change Order Management

Their responsibilities differ significantly from standard bookkeeping, as they need to account for project-specific variables like labor, materials, and job costing. Holding back retainage is standard on most construction jobs, especially long-term contracts. If it’s not reimbursed quickly enough though, it can cause a domino effect of cash flow problems. To properly record and track retainage, you’ll need to include an account for retainage receivables on your company’s Chart of Accounts.

Why Certificates of Insurance (COIs) Are Essential for Protecting Your Construction Business

We will cover everything from setting up a bookkeeping system to managing expenses and revenues, tracking job costs, and complying with industry-specific regulations. The financial components of construction projects are the exclusive purview of construction bookkeeping. The process includes recording all the money coming in and going out of the project. To provide contractors with a comprehensive picture of their financial performance, construction accounting ensures that all financial records are correctly structured.

Tip 4: Account for contract retainage

In these cases, there’s a risk that you won’t collect the full payment, so it’s wise to wait until you actually receive the payment to recognize it as income. By delaying revenue recognition until after you complete a construction bookkeeping project, you can also defer the recognition of related income tax. To ensure you aren’t surprised by a customer withholding part of the fee you’re owed, make sure you account for contract retainage properly when budgeting for a project and invoicing clients.

• Things like suppliers, labor, and leased equipment are considered direct expenses.
• Familiarize yourself with contractor tax forms that are relevant to your business, such as Form 1099-NEC for nonemployee compensation and Form W-2 for employee wages.
• These reports are crucial for managing project profitability and overall business performance.
• The better you’re able to integrate all the elements that affect your profitability, the better you’ll become at project management, estimating future jobs, and controlling costs on and off the job site.
• By doing so, your construction company can avoid tax discrepancies and maintain compliance with tax authorities.
• WIP reports make it easier to get an overview of each project’s budget, percent complete, actual costs to date, and more, so you can see if it’s overbilled or underbilled.

Automated systems streamline invoice collection, approval workflows, and expense tracking, allowing bookkeepers to process financial data more efficiently. A CPA and Senior Software Product Manager specializing in construction accounting software. Over 10 years of experience in designing, implementing and delivering the Spectrum Construction Accounting and Project Management Suite, a web-based Enterprise Resource Planning (ERP) solution. Experience in all aspects of consulting, sales and product development as the result of working over 25 years in the construction accounting software space. With this information in your accounting system, tracking things like retainage and change orders, issuing purchase orders or subcontracts, and keeping client billings on schedule becomes much https://www.bignewsnetwork.com/news/274923587/how-to-use-construction-bookkeeping-practices-to-achieve-business-growth easier. You’ll also use the contract’s total cost and scope of work to develop the project’s schedule of values, which breaks down individual billable tasks and their value.