All About Construction Accounting: 7 Reasons Why Contractors Should Use It

By | Lauren Cordell

Construction accounting is way different from standard business accounting. Besides the regular payroll transactions, accounts receivable, and accounts payable, contractors also need to track job costing, retention, progress billings, change orders, customer deposits, and many more. You will learn more about this process in this article.

While smaller construction companies can record project transactions in simpler formats like spreadsheets, it may become a burden in the long run. Working alongside a professional accountant will help your business run smoothly. Read more to discover the ways of construction accounting and its benefits.

What Makes Construction Accounting Different?

Unlike other businesses, like manufacturing or retail, construction projects consist of distinct features regarding accounting. Building partnerships with firms like Beyond Accountancy help you understand further the following characteristics that make construction accounting different:

  • Decentralized Production

Production in construction projects happens on different sites, requiring both labor and equipment to move from one place to another. This results in mobilization costs which means that labor and equipment costs must be tracked in every site with its corresponding wage rate.

Along with specific construction requirements, a single project may also feature long production cycles. When it becomes unpredictable, contractors then fail to manage large inventory costs. This calls for careful planning and tracking measures.

  • Project-Based Accounting

Contractors primarily operate around several projects, from production and billing to labor. Compared to regular accounting, construction projects have to treat every profit center as a separate unit.

Whether they have similar requirements, these projects still account for different site variables and conditions such as material costs, legislation, and labor availability. For contractors to manage control bids and expenses efficiently, they have to track each project cost accurately.

  • Long-Term Contracts With Extended Payments

Construction projects usually last for several years and will require extended payments as time passes by. It may take 30-90 days before contract terms issue invoices. Hence, cash management and revenue recognition must be accounted for and tracked properly.

Benefits of Proper Accounting in Construction Projects

Accounting for the money coming and out of each project is essential as it determines whether your business can profit from it. Learn more about the benefits of proper accounting that every contractor must know below:

Establish Priorities

Each employee of your organization intuitively knows the importance of tracking the amount spent on each project unit. But establishing priorities within your team, you’ll have efficient communication when identifying jobs, revenues, payroll, and many more.

Provide Information to Bookkeepers Promptly

Construction projects cannot afford to encounter misinformation in their production. This can cloud your project reports which is the one primary source of errors on the site. Make work information readily available to your bookkeepers by accounting for each transaction properly.

Efficient Communication Between the Main Office and the Site

Proper accounting can make communication between the main office and the site more efficient by assigning a specific cost code. This happens after flagging the name of each production unit and the assigned personnel entering payment details into a centralized accounting system.

Know Who to Entrust Company Cards

When using debit and credit cards, job names or numbers aren’t often indicated in the receipt. That is why entrusting company cards only to responsible team members is crucial when operating construction projects.

This way, receipts are sent, and jobs are identified directly to the main office. Construction accountants can then keep receipts submitted through text or emails and work with the bookkeeping department for fault-less cash monitoring.

Develop a Good System for Purchase Orders

It is crucial to have your finance, tax, or accounting team develop an efficient system for purchase orders. This includes providing order numbers from the field staff before issuing equipment to any production unit. By incorporating this into your project workflow, you can ensure that invoices will only come to the main office with jobs labeled on them.

Follow Smart Practices

When assigning jobs to each production unit, team members must follow only the best practices. As an example, job numbers should start with arbitrary numbers and must contain three to four digits. These numbers must indicate project details like the year the production started, trade, and mode of expenditure.

Separate Costs Effectively

Each production cost will vary from the office and the overhead costs with a specific account number in the company ledger. Depending on the ability of the accountant or qualified bookkeepers Gold Coast you have hired, the account chart in your company ledger may either help or hinder your construction project.

For instance, your company ledger’s account numbers usually start at the 5,000-mark. Account tracking will then become easier for your team members if all expense, allocated, and overhead costs are coded within the 5,000, 6,000, and 7,000-mark, respectively.


You may think that construction accounting is just like regular accounting, but it has its differences. Learning all these and their respective benefits will allow your construction project to operate without encountering errors.

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