A Construction Accounting Teams Guide to Financial Audit Preparation

Construction bookkeeping is special because it has a nature of decentralization. For those who love hard work, spending time outside, and being your own boss, starting a landscaping business may be a great fit. This will ensure that you don’t end up with corrupted backups that you can’t use to recover your data. You should keep all three of these journals updated regularly to know how your business is doing, as well as prepare for a potential audit.

Implement Project Cost Tracking:

• You may not be able to automate all of your bookkeeping, but there are parts of it that will make it much easier to do.
• The financial components of construction projects are the exclusive purview of construction bookkeeping.
• Maintain separate accounts for each subcontractor, and pay invoices promptly to maintain a positive relationship and avoid penalties.
• Financial forecasts are essential if you are looking to borrow money or attract investors.
• Opting for a solution that requires extensive training before you can use it is not only going to cost you time but also risk frustrating both you and your employees.

Even if you hire a professional firm, having an automated system that collects and stores the information will make it easier for them to perform your bookkeeping tasks. Plus, automation eliminates the risk of human error when tracking expenses and revenue and makes it easier for you to share your information. If you don’t have a highly accurate and efficient construction bookkeeping system, the rest of your business will suffer. Many factors make it challenging for companies to accurately track and report their financial activity. Essentially, this ASU improves disclosure requirements, prompting more useful information out of financial statements. The FASB put it in place to ensure companies provide more transparency into how they recognize their revenues.

Monitor work-in-progress (WIP) reports

Poor cash flow management can lead to project delays and financial distress. Implement robust cash flow forecasting and management practices to ensure your business remains financially healthy. Regular account reconciliation helps catch errors, prevent fraud, and ensure accurate financial reporting. For those working to create healthier financial outlooks, it’s beneficial to conduct internal audits more proactively.

Construction company accounting methods

You might choose to keep paper copies of invoices and receipts in a secure location, or digital copies for easy access from any location. While backing up your books is a best practice for any bookkeeper, it’s especially important in the complex world of construction bookkeeping. The completed contract How Construction Bookkeeping Services Can Streamline Your Projects method is best used for small jobs that are relatively short-term or when a project brings an inherent risk in completion. Under the completed contract method, you’ll recognize revenue after the contract’s completion (or substantial completion). Expenses are the costs incurred in the process of running and managing your business.

Manage your construction bookkeeping effectively

Additionally, the financial reports that construction companies rely on to measure their performance differ slightly. In addition, tracking each project’s profitability can be tricky, particularly compared to other industries where expenses and revenues are lumped together in a single financial statement. The construction industry is unique in many ways, including the high price of contracts and length of projects. This category looked at the most common features sought by construction contractors and defined which companies provided them.

Not only will this help you prepare for tax time, but it provides an accurate accounting of profitability for each contract. To compare various construction accounting software platforms, we collected a proprietary set of data points to compare and contrast. This included looking at cost, the types and quality of features the software offered, third-party ratings and reviews and a combination of metrics put together by our staff of experts. We looked at a total of 22 different metrics across five separate categories to reach our conclusion.

• Construction accounting software can save you time and help keep you organized when managing your building projects.
• According to the Construction Financial Management Association, pre-tax net profits average between just 1.4% and 3.5% for contractors and subcontractors.
• Regardless of the option you choose for your bookkeeping needs, it is useful to understand the process involved in construction bookkeeping.
• Here are some things to look for when choosing the right bookkeeping software for your construction business.
• This helps ensure that nothing slips through the cracks in the construction process.

Implementing Robust Record-Keeping Practices

The cost management component factors in labor and equipment costs along with needed materials and subcontractor bids. You don’t need to wait for an official audit to review and evaluate financial records. Others implement monthly audits of their work in progress schedules to ensure WIP reports are error-free. Keeping backups of your transactions and books is crucial for auditing and for avoiding mistakes in your bookkeeping.