Bookkeeping for Construction Companies

Overview of Accounting for Construction Firms

Bookkeeping and accounting are significant in any construction business, but these businesses have different requirements from other industries. Construction companies require solid bookkeeping to monitor their business and financial transactions to make sound financial decisions. This article aims to present key concepts and guidelines for bookkeeping in construction companies.

Basic Bookkeeping Requirements

Like any other business venture, construction companies should also develop an accounting system that involves documentation of business activities, revenue, expenses, properties, claims, and capital.

Basic financial transactions that must be recorded include:

– The services rendered to the client and the total amount due for them

– Amounts received from clients

– Acquisition of materials, equipment, and services from other contractors

– Payroll and associated taxes and the differences between them

– Loan payments

– Acquisition and disposal of equipment or property

Construction companies should ensure that they keep record of both the debit and the credit aspects of the transactions through double entry bookkeeping. This is a process that can be easily managed using accounting software.

Managing Construction Billing

A significant accounting function is preparing and issuing invoices concerning construction projects.

Recommended best practices include:

– Outline the billing schedule and payment terms of the contract

– Provide clients with invoices for a portion of work done at regular intervals (i.e., monthly)

– Make sure to check the percentage of work done before billing

– Capture all change orders and invoice adjustment appropriately

– If you still have past due balances for 30 days or more, follow up on the payments

In longer projects, it is good to issue invoices to the clients from time to time to ensure that cash flow is steady. Tracking time and material expenses is crucial to provide accurate customer billing.

Job Costing in the Construction Business

Job costing is used to identify direct costs that are associated with particular jobs in construction. This makes it possible for the companies to determine its profitability of a particular job.

Important costs to track per project include:

– Materials

– Equipment rental

– Subcontractor fees

– Salaries and wages; payroll taxes

– Permits and insurance

Proper job costing enables construction firms to set appropriate price bids when bidding for new construction projects. It also assists the companies in avoiding cases of under-budgeting and identifying when a particular project is either highly profitable or not profitable at all.

Payroll Management

Wages are usually one of the most significant expenses in construction companies.

Tight payroll controls are advisable, including:

– Strict documentation of hours logged in by each employee, distribution to the various construction sites

– Using vacation/sick days, leave, and overtime

– Computation and payment of payroll taxes and wages in the form of pay checks or through direct credit transfers

– Completing necessary tax returns and payments to the IRS in a timely manner

Construction companies can benefit from third-party payroll providers in that they are able to assist in the processing of taxes so that the construction companies do not have to worry about it. However, it is crucial to monitor the internal labor hours for construction per construction job.

Asset Tracking

Construction companies hold large inventory including, but not limited to, machinery, vehicles, equipment, consumables and materials, idle lands, and structures. Tracking these assets and depreciation in the company’s books is imperative.

This helps the company:

– Ensure correct computation of profits, annually, by subtracting depreciation

– Monitor the costs of repairs and maintenance of the equipment per unit to help in decisions to retain or replace old equipment

– Ensure that insurance policies on important assets are updated

– Ensure that future investment in property and equipment is made with adequate information on the possible risks and returns on investment

Conclusion

Proper accounting standards and bookkeeping guidelines give construction firms much-needed financial transparency. This can be very beneficial for the construction businesses since they can monitor every single cost, make the most of the profit which is earned, and even plan on the expansion of the industry as well as support vital decisions made in the industry. Choosing bookkeeping systems requires dedication but yields high returns in the long run.