5 construction accounting best practices for contractors

As a contractor, you’re likely aware of the importance of construction accounting. Do you know what makes construction accounting unique and different from regular accounting? In this blog, we’ll discuss 5 construction accounting best practices for contractors to follow. We’ll also discuss why they are important and how they can help you manage your business.

What is construction accounting?

Construction accounting is a critical process for contractors. There are several types of construction accounting, so it’s important to choose the right one for your business. Review these five best practices to determine which type of construction accounting is best for you. These will help you track project expenses, income, payroll, and financial reports. Stay organised and keep track of your business finances with construction accounting best practices.

Construction accounting vs regular accounting: what’s the difference?

A lot is going on during the construction phase of a project - from contracts to construction progress to financials. That’s where construction accounting comes in. It’s a specialised form of accounting that focuses on the construction phase of a project. This is important because contractors need to comply with state and federal guidelines while in progress. Make sure you know the basics of construction accounting to stay compliant and organised.

How to account for construction

Construction accounting can be a complicated process, but it can be much easier with a few best practices in place. By keeping accurate records, tracking project numbers, and using a worksheet or Gantt chart to plan and track deadlines, you’ll be able to stay on track and accurately invoice your clients. In addition, make sure all vendor payments are deposited into an escrow account until the client grants final approval. Finally, complete construction accounting reports at the end of each month (or as required by your accountant) to document costs, income, and taxes associated with your business.

Use job costing

Contractors need to have a good construction accounting system in place. This will help them track costs, billing, and important contract-related data. One of the best construction accounting best practices is to use job costing. This allows contractors to track the cost of each job and report this data to their billing department. Additionally, having a master estimate will ensure accuracy in billing. To ensure that contractors are collecting sales tax, it’s important to have a good vendor management system in place. This will help contractors track and manage contracts with vendors. Finally, construction accounting best practices include ensuring contractors have a good understanding of best practice accounting principles. By doing so, they can avoid common construction accounting errors.

Consider completed contract accounting for taxes

Construction accounting is essential for contractors who work on a project basis. By tracking completed work and accounting, contractors can determine their tax liabilities for the project. This information can be tracked using a simple spreadsheet or online tool. Additionally, tax liability may change depending on the type of contract performed. For example, construction contracts that involve the completion of specific tasks or stages may have different tax implications than contracts where construction is ongoing throughout the project. Knowing your tax obligations is key to avoiding any surprises at year-end. By following these best practices, construction contractors can keep their businesses running smoothly and comply with all relevant tax laws.

Manage change orders

Construction accounting can be daunting, but it can be manageable with a bit of practice. Here are four construction accounting best practices to keep in mind:

• When receiving a change order, keep track of the original contract amount, start and end date, hours worked, materials used, and other pertinent information.
• Make sure all invoices are correct by matching the work done with the corresponding invoice number.
• Always prepare a detailed change order explaining how each request was made and what changes were necessitated.
• Once approved by your boss or owner - sign it!

Choose the right payroll provider

Regarding construction accounting, it’s important to choose the right provider. This means selecting a payroll provider that meets your specific needs. Some critical factors to consider are the company’s reputation and customer service. Additionally, ensure the provider has an online account-setup process so you can easily manage your finances. Compare various providers and select the one that best suits your needs!

Use time tracking software with geofencing

Construction accounting is vital for contractors to stay in business. By following these best practices, contractors can keep track of time spent on tasks, ensure expenses are properly accounted for, and securely bill clients.

• Use time tracking software to track the time contractors spend on each task. This software can help contractors keep tabs on their whereabouts for tax and safety purposes.
• Geofencing can also help keep track of the contractor’s whereabouts for billing purposes. Billing is made easier and more accurate by setting up a system where the contractor is alerted when they enter or leave a designated area.
• It’s essential to have accurate records of time spent, which can be done using time tracking software or keeping a time diary.
• Contractors should also set up a billing system that is secure and easy to use. By doing so, billing errors and disputes can be minimised.

Conclusion

Construction accounting isn’t the same as regular accounting. A lot of complicated procedures are involved in the procedure. If you are a construction business owner, you may contact the best accountants to assist you. Since your project may be long-term or short-term, the contractor will eventually understand and provide solutions accordingly.