Construction Accounting Best Practices

Construction accounting differs from standard accounting. Key concepts include job costing, progress billing, retention, change orders, and work-in-progress (WIP) reporting. Familiarize yourself with these concepts before setting up your system.

Create a chart of accounts tailored for construction. Include accounts for job costs (materials, labor, equipment, subcontractors), overhead, revenue recognition, and retention. Organize accounts by cost type and project phase.

Track all project costs by job and cost code. Assign every transaction to a specific project and cost code. This enables accurate project profitability analysis and helps identify cost overruns early.

Set up progress billing based on project milestones or percentage complete. Bill customers as work progresses, not just at project completion. Track retention and ensure proper revenue recognition.

Establish a process for change order management. Document all change requests, get approvals, update budgets, and bill customers for approved changes. Track change order impact on project profitability.

Monitor retention amounts for both receivables (from customers) and payables (to subcontractors). Set up retention schedules and ensure proper release when project milestones are met.

Create regular financial reports including job cost reports, WIP reports, profit and loss by job, and cash flow projections. Review reports monthly to identify trends and issues.

Reconcile job costs, accounts receivable, and accounts payable regularly. Ensure all transactions are properly coded and allocated. Address discrepancies immediately to maintain accurate financial records.