Construction Bookkeeping: Essential Tools & Tips

With unique challenges like fluctuating material costs and labor management, construction bookkeeping ensures every financial detail is recorded correctly. By leveraging these services, businesses can focus on delivering quality projects while maintaining financial transparency and stability. Whether through cloud-based systems or personalized support, professional construction bookkeeping simplifies operations and drives profitability. A construction bookkeeper manages financial records, tracks job costs, processes payroll, handles invoicing, and ensures tax compliance. They provide accurate financial reports, help manage cash flow, and analyze project profitability.

Creating Financial Statements

• Its purpose is to enable construction companies to have a better understanding of their financial situation through tracking and recording both expenses and incoming payments.
• Many construction companies use a “completion percentage” approach, meaning they calculate estimated taxes based on quarterly income and expense reports.
• However, note that the FASB updated this principle to clarify how contractors should report information from their customer contracts.
• By collaborating with them, you can free up your time and resources to focus on growing your business while they manage the financial aspects with precision and accuracy.
• Under the cash method, you will record expenses as you pay them out, and income gets accounted for when payments are received.

Professional bookkeepers ensure compliance with tax regulations, minimizing the risk of penalties or audits. Additionally, they identify opportunities for deductions and credits, reducing the overall tax burden and improving profitability. Irregular payment cycles, retentions, and upfront costs are common in the construction industry. A professional bookkeeper ensures timely tracking of accounts receivable and payable, preventing cash shortages and delays. With better cash flow visibility, businesses can plan expenditures, negotiate supplier terms, and ensure smooth project operations without financial disruptions. Construction Bookkeeping Services are specialized financial management solutions tailored to the unique demands of the construction industry.

Controlling costs with construction accounting

Imagine the time you could save if your accounting platform could work together with your favorite construction management software. This isn’t something most accounting systems offer, and it’s not something many contractors even know is possible. At CrewCost though, we knew it’d be a game changer for contractors, so we made it happen. Our platform can easily integrate into your favorite CRM, so your field and office teams can bridge costly communication gaps and collaborate on a more meaningful level. The problem is, cost codes and cost types aren’t something you should have to wait on. A good construction accounting solution will allow you to plug and play right out of the box, no workarounds needed.

• Cash basis accounting is simpler and easier to manage, but accrual basis accounting provides a more accurate picture of your company’s financial health.
• Expensify is a software solution designed to help businesses track, organize, and categorize receipts and expenses.
• This guide to construction accounting offers insights to make bookkeeping an asset rather than a headache.
• As your business expands, managing multiple projects, invoices, payroll, and tax filings can become overwhelming.
• Managing equipment depreciation, subcontractor invoicing, and retention schedules is key to avoiding delays in payments and ensuring financial control.
• Construction bookkeeping, while challenging, is an essential part of running a construction company.

Top-Rated Construction Bookkeeping Software in 2024

• Improving your process starts with understanding how construction accounting is unique, and determining the different types of job costs you can incur on each project.
• Further, T&M projects may have an uncertain scope, making it difficult to predict the estimated profit for any given project.
• This isn’t something most accounting systems offer, and it’s not something many contractors even know is possible.
• If you operate across state lines, you may also need to account for additional tax payments.
• For these reasons, construction companies may need to generate separate profit and loss (P&L) statements for each project.
• Construction accounting is a specialized branch of financial management tailored to the construction industry.

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. Assets are a company’s financial resources — in other words, anything that is cash or could likely be converted to cash. As a result, construction companies often find it difficult to match the efficiency of companies that make the same products repeatedly in a controlled location. Non-personalized ads are based on contextual information, such as the content of our website. You should also ensure it’s compatible with the size and type of company you have.

Setting up a Construction Bookkeeping System

Their responsibilities differ significantly from standard bookkeeping, as they need to account for project-specific variables like labor, materials, and 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. Most businesses simply record the cost of the products sold, but construction companies are quite different.

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 The Role of Construction Bookkeeping in Improving Business Efficiency centralized accounts. The cash method of accounting for contractors is a system that records all cash transactions when they occur.