A Building that is Under Construction and a Large Construction Crane

Everything You Need to Know About Construction Bookkeeping

Construction Bookkeeping is a type of accounting and financial management that is unlike any other. Its goal is to make it easier for contractors to keep track of each task and how it affects the organization as a whole. To complete the bid process, costs from labor, employees, transportation, equipment, materials, and insurance must all be brought together. A good bookkeeping system provides for more precise operations, which can lead to increased profitability for the organization. Despite the fact that it follows conventional accounting concepts, it has a number of peculiarities that are critical to running a successful construction company.

What Makes Construction Bookkeeping Different?

There are several factors that make construction contracting different than other industries like retail. Below are some of those variables:

Scattered Custom Projects

Jobs are being completed on various job sites rather than set locations which differed from retail businesses where the cost of the laborforce and COGS are more predictable. Equipment use and labor frequently move, which results in mobilization costs. Furthermore, the costs have to be tracked at each job site which adds to the complexity of accounting.

Contract Length

The high price and length of construction projects make payment scheduling and collection unique. In most industries, commissioned contractors get paid upon delivery of a product or service. However, construction projects can take months or even years to complete. This makes accurate bookkeeping essential.

Unique payroll considerations

Keeping track of payroll is another element where construction bookkeeping is essential. Unfortunately, it’s not as simple as agreeing on compensation with a worker and paying them the same rate per project.

Construction companies usually need to pay their workers what’s known as a prevailing wage.

A prevailing wage is the standard hourly rate for a worker in a particular state or locality determined by regulatory agencies and each state’s State Department of Labor.

Construction Bookkeeping Tips

Here are some tips that can assist you to help simplify the way you handle your construction bookkeeping.

Properly record all details payments and invoices

If you did not already know, you should be keeping all of your business receipts. Ideally this information is stored in a centralized location such as an accounting software. Accounting softwares that are good for construction companies to use are below:

  • Sage 100 Contractor
  • PENTA Construction Management Software
  • Intuit QuickBooks
  • ZipBooks
  • Construction Partner

Alternatively, one may record all of their payments manually either in a physical ledger, or spreadsheet. If one chooses to handle their finances manually, then they need to make sure that they record all of the details about their transactions in great detail in the event that they are ever audited.

Use job costing to manage project costs

Job costing is a process that allows you to determine the costs of working on a project. It allows on to estimate labor, material, and overhead cost, as well as determine how much one should be charing for each project.

Once you create a list of items that need to be completed for each job, divide them into the following expense categories:

  • Labor - How much money you will have to pay workers, whether employees or subcontractors, to complete the job. Remember, that if you are paying employees, you will have to account for payroll taxes, workers comensation, and overtime if applicable.
  • Materials - This cost includes both direct and indirect costs. Direct costs include lumber, concrete, steel, etc. and indirect costs would be items such as nails, screws, staples, etc.
  • Overhead - Overhead would be the costs associated with all other business expenses such as rent, utilities, and salaries for administrative workers.

Use multiple bank accounts

Using multiple bank accounts to reserve money is a great way to keep an eye on what your money is set aside for. A good example is transferring the taxes withheld from your employees checks to a separate bank account until the time that you need to file and remit payroll taxes to your local and state governments.