A Guide to Construction Bookkeeping

Janet Berry-Johnson, CPA, is a freelance writer with over a decade of experience working on both the tax and audit sides of an accounting firm. She’s passionate about helping people make sense of complicated tax and accounting topics. Her work has appeared in Business Insider, Forbes, and The New York Times, and on LendingTree, Credit Karma, and Discover, among others. Whether you’re an owner of a commercial or industrial cleaning company, or running a residential business, it’s only natural that you’re always on the lookout for new ways to… The advantage of intuitive software is that you don’t need to spend time learning how to use it and can take advantage of all its features straight away. Make sure to take advantage of these free trials when you’re shopping for your next bookkeeping solution.

Simplify your construction accounting software

This causes mobilization costs from frequently moving equipment and people from site to site. Every job site needs to be tracked in terms of equipment and varying labor wage rates. Job costing tracks expenses on a per-project basis, offering a granular view of where costs are incurred.

Tax Tips in Bookkeeping for Construction Companies

This makes billing more complicated, requiring specialized knowledge to manage and oversee it. Some firms have made use of construction bookkeeping software to track and simplify billing. Construction bookkeeping is important since projects in this industry tend to be complex. Calculating revenue can be difficult without the right information, especially when your firm works on multiple projects. All costs must be tied together in bookkeeping, including expenses from labor, equipment, materials, transportation, and insurance. Each month your bank will send you a record of your income and expenses.

Construction Bookkeeping Best Practices

Alternatively, you can talk with other business owners and ask if they can recommend a certified accountant. While there are many places where you can find a certified accountant, your best option is to browse the American Institute of Certified Public Accountants database. It lists thousands of licensed CPAs who can help with all your accounting needs. Lastly, as Hubstaff records workers’ arrival and departure times, there is no need for them to note down this information manually. This means that they can dedicate more time to completing their work duties.

Streamline Invoice Processing:

Construction bookkeeping is a form of bookkeeping unique to the construction industry. 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. They are financial experts with a comprehensive understanding of the unique challenges and nuances faced by the construction industry. From job costing and progress billing to lien waivers and change orders, they handle the financial intricacies so you can focus on building your projects and your business. Proper bookkeeping ensures transparency, improves financial management, and enables contracting companies to gauge the health of their operations.

• These receipts will show where your money is going and will be your lifeline if you are ever audited.
• They’ll provide guidance, answer your questions, and teach you how to do tasks in QuickBooks, so you can stay on track for tax time and run your business with confidence.
• It involves tracking the cost of labor, materials, and other expenses to ensure that projects run as efficiently and cost-effectively as possible.
• Shoeboxed provides a mail-in service for physical receipts if you want to outsource your scanning.
• Economic and political decisions can have serious consequences on the construction industry.

You can use this method of revenue recognition even if you’ve received payments during the contract period. The main benefit of charging a client in milestone payments is that you don’t need to wait until you fully complete the job to get paid. If you manage many projects at once, strong retainage management is essential.

So they need to be able to track accurate costs, bid on jobs, manage prevailing wage requirements, and handle a slew of other accounting responsibilities. With the completed contract method, you recognize revenue only after completing a project. Construction companies often use this method for short-term contracts, especially those where contract costs can be hard to estimate. However, construction projects can take months or even years to complete. Indirect costs are those which are essential to running your business across projects.

• Hiring an accountant to take care of your bookkeeping can save you a significant amount of time, as well as eliminate bookkeeping and accounting errors.
• 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.
• You’ll also need to account for contract retainers, usually 5-10 percent of the contract amount.
• 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.
• While it’s possible to manage your construction accounting on your own, owning a construction company comes with many complexities that may lead to you making costly accounting errors.

QuickBooks invoicing for construction gives you the flexibility to get paid anyway you want. Invoices have a “Pay now” button so your client can pay instantly online. We’ll process the payment, assign it to a job for tracking, and transfer the money to your bank account. Construction companies need to keep track of a project’s income, expenses, and operational costs that vary due to numerous circumstances. Sound financial accounting practices avoid the overuse of the available resources and help maintain optimization in processes. Also, it prepares for any unprecedented events beyond the control of the company.

• Simply put, construction bookkeeping is the systematic recording, maintaining, and analyzing of financial transactions related to a construction project.
• Our team of experts will tailor solutions to your specific needs, whether that requires handling day-to-day tasks or providing strategic financial guidance.
• Bookkeeping in any industry is a process of sorting through documents and information and recording revenue and expenses.
• Below are the key ways in which construction accounting differs from other types of accounting.
• This can improve collaboration and ensure everyone is on the same page, regardless of location.

Consider the cost of insurance, travel, workers’ compensation, materials, subcontractors, equipment, and more. You will need to factor this into your construction accounting for each construction project and for the business as a whole. To effectively manage these variable expenses, you can use FreshBooks Project Accounting The Role of Construction Bookkeeping in Improving Business Efficiency Software which lets you track project financials and create reports quickly and easily.