Construction Bookkeeping 101: Everything You Need to Know

• Reading Time: 4 Minutes
• Published: November 24, 2021
• Last Updated: April 5, 2025

The construction sector of any country plays a highly significant role in building and maintaining a country’s beauty and reputation because they lay a setup for every other industry. However, construction companies have so many things to consider on-site that they pay little to no stress on financial accounting aspects. But without adequate financial processes, a company cannot qualify for long-term survival. This blog covers the introductory portion of construction bookkeeping and its impact on the business’ survival.

How Does Bookkeeping Differ for the Construction Industry?

While general accounting cares about the profitability, financial performance, and health of the business, financial accounting in the construction industry adds a new element – project accounting. Here, companies have to track the incomes and expenses of each project separately. It makes the process pretty complex for the business. These projects may go on for a long time and lead to massive gaps in financial cash flows. Firms usually focus on the following points while recording transactions in the books:

1. Project estimation:

Construction companies must make accurate estimates about the project costs and potential revenue. It is because any inaccuracy might lead to losses to the company. The project accounting details include:

• Contact amounts
• Cost estimates
• Subcontracts
• Purchase orders
• Total quantity
• Production data
• Customer data
• Billings, etc.

Also, since construction projects usually stretch over a long time, you need to consider that factor and prepare project totals accordingly.

2. Project management:

The construction industry is prone to numerous changes while the project is ongoing. Therefore, it becomes essential for these companies to anticipate them and make variations accordingly. They might have to change the material, patterns, usage, designs even before the process begins. Therefore, you need to focus your financial accounting on your budget and document and monitor the changes to ensure its effectiveness.

3. Compliance procedures:

Compliance requirements for the construction industry, much like every other industry, keep on changing. Therefore, companies need to stay updated with the legal regulations and ensure timely management.

Managing the Core Components of Construction Accounting:

The construction industry has some unique accounting components that affect the bookkeeping process directly. These include:

1. Project/ Job-based accounting:

Since construction companies work on individual projects simultaneously, the financial accounting must focus on the money spent and incoming from a particular project. It will help them track the profitability or loss from that project and help them achieve their desired margins.

2. Billing processes:

The construction billing process in financial accounting comes in two methods: fixed pricing and unit method. While the former focuses on proposing a price upfront and paying any overheads from their pocket, the latter allows businesses to estimate and charge for every unit completed. All of it comes down to accurate estimation procedures.

3. Tracking variations in incomes and expenses:

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.

Improving Construction Bookkeeping Systems:

1. Hire an outsourcing party:

Since construction companies and their personnel have a lot of things on their plate, you should hire a virtual CFO to manage your financial processes. The outsourcing companies have the required specializations and knowledge of advanced technologies and practices of construction bookkeeping. They will ensure minimum mistakes and provide a real-time view of the financial data while keeping it safe and secure from any evil eyes. Also, they can cater to your unique demands and provide flexibility that an in-house department might not be able to provide. Therefore, you should hire an efficient outsourcing company and save your costs and time.

2. Update transactions regularly:

If you wish to achieve accuracy and efficiency in bookkeeping processes, it becomes crucial to update your transactions as soon as they occur. It means you should track your incomes and expenses as you receive or pay them and record them in the books. Also, keeping your invoices safe and secure prevent issues in the growth of your business.

3. Utilize job costing method:

Using job costing, you can track the costs of every individual project without any hassle. It also helps find ways to cut your unnecessary expenses. In a long-term project, it serves the purpose of tracking the averages and increases in prices.

4. Use more than one bank account:

Construction companies can deal in multiple projects simultaneously. However, using one bank account for all the transactions can complicate the financial accounting process. It makes tracking the progress of an individual project pretty challenging. With a separate bank account, you can identify any billing or payment errors on time without wasting much time.

Conclusion:

Construction bookkeeping is pretty complex. However, with the help of specialists, technology, and basic knowledge, companies can make the most out of it. Hire a construction business accounting and bookkeeping service provider today to free yourself from the dreaded number work.

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