Construction Bookkeeping: Mastering the Art of Financial Management

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The way the construction industry works is quite different from other industries, and managing the bookkeeping, payroll management and accounting for a construction company can be really hard — especially for a busy business owner who does not necessarily have experience in bookkeeping and financial management.

That is where our team at Virtual Construction Assistants can help. Our hiring services can help you find the construction bookkeeping software and accounting support for your construction business.

Not sure where to get started or what kind of professional construction bookkeeping tips and services you need? Let’s dive into the process of bookkeeping for a construction company and how a virtual construction assistant can be a great construction bookkeeping solution.

The Basics of Construction Bookkeeping

Bookkeeping for a construction company involves recording financial transactions, organizing and analyzing financial data, and ensuring all financial records are accurate and current.
This includes tasks like:
  • Organizing financial data: Organize receipts, invoices, and expenses by project, type, or date for easy tracking.
  • Tracking income and expenses: Track all construction-related income and expenses, including materials, labor, subcontractors, and equipment rentals.
  • Reconciling bank accounts: Regularly reconcile your bank accounts to ensure that all transactions have been recorded and your financial statements accurately reflect your company’s financial status.
  • Maintaining accurate financial records: Track project details like start/end dates, budgets, and cost changes to ensure profitability.
  • Utilizing accounting software: Use construction-specific accounting software to manage your finances and streamline bookkeeping while generating accurate financial reports.

Accounting for Construction Companies

Accounting for a construction company involves preparing financial statements, analyzing financial performance, and ensuring compliance with tax and regulatory requirements for successful construction business.
Here are some steps to guide you through the process:
  • Classify transactions: Categorize all financial transactions based on the type of expense, income, asset, or liability. This will make it easier to generate accurate reports and analyze the financial health of your business.
  • Allocate project costs: Allocate costs to specific projects to have a better understanding of the profitability of each project and to manage your cash flow effectively.
  • Record depreciation: Allocate the cost of long-term assets, such as equipment and vehicles, over their useful life to account for their depreciation.
  • Prepare financial statements: Produce regular financial statements, including a profit and loss statement, balance sheet, and cash flow statement, to assess your company’s financial health and make informed decisions.

Which method of accounting is best for a construction business?

There are two primary methods of accounting used in construction businesses: the completed contract method and the percentage of completion method.

Picking the right method for your construction business depends on various factors, including your company’s size, revenue, labor costs, and complexity.

Completed Contract Method

The completed contract method is a widely-used accounting practice for long-term construction projects. It involves recognizing income, expenses, and profits only when the construction contracts are fully complete. This type of construction accounting is useful for complicated projects that span several years.  
Under this method, contractors do not recognize any income or expenses until the project is fully completed. This can be helpful for contractors who experience significant fluctuations in project costs.  

Accrual Basis or Percentage of Completion Method

The accrual method, or percentage of completion method, records revenues when it is earned throughout the project and when expenses are incurred.
This method provides a more accurate representation of a construction company’s financial performance and helps maintain a precise understanding of the company’s financial health.
The accrual method is generally recommended for larger construction businesses or those with complex financial arrangements.

Basics of Construction Accounting

If you want to run a successful construction company, it is essential to have a good grasp of accounting.
Some of the basic elements of construction accounting include:  
  • Job Costing: Construction accounting involves tracking the overhead costs and revenues of each contract so that you can determine the profitability of each job and manage cash flow effectively.
  • Cost Codes:Assign cost codes to each type of expense, such as labor, materials, and subcontractors, so you can accurately assign costs to each construction project.
  • Change Orders:Construction projects often require changes during the course of the job. Having a way to track and manage change orders is crucial to make sure they are reflected in your accounting system.
  • Overhead Expenses: Track overhead expenses, such as rent, utilities, and insurance, to individual projects to determine each project’s actual profitability.
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With the help of professional and effective construction bookkeeping services, you can streamline your bookkeeping process and ensure your bookkeeping records are accurate.

An Administrative Assistant's Role in Bookkeeping for a Construction Company

In many construction companies, the role of a virtual assistant is more than just basic administrative support. We have helped countless clients in the construction industry hire for a crucial role of bookkeeping and accounting.
Some examples of the bookkeeping and accounting services a virtual assistant can provide include
Supervising accounts payable and accounts receivable: They can manage accounts payable and accounts receivable, ensuring accuracy and timely payment of invoices.
Monitoring budgets and business expenses: A virtual assistant can track business expenses and ensure your expense categories are organized appropriately. This can help keep your separate business bank account organized from your personal expenses.
Financial reporting:The financial recordkeeping and reporting of your construction business is important as you look to grow your company. You can get valuable insights into your company’s financial health with accurate profit and loss statements, balance sheets, and cash flow statements.
Track direct and indirect costs: A construction project has countless expenses, and keeping up with job costs, revenue recognition, material costs and more can require a huge amount of time. A virtual assistant can track these in your construction accounting software and keep separate bookkeeping journals for each project.
Financial audits: A virtual construction assistant can support internal and external audits of personal finances and business expenses by ensuring accurate and accessible financial records.

Leverage an administrative assistant for your construction bookkeeping

Ready to find a virtual construction assistant to help with your bookkeeping? We can help you find, hire and onboard bookkeeping and accounting virtual assistants for your construction businesses.
Ready to get started? We have helped companies across the construction industry improve their business with accurate bookkeeping and accounting.

Virtual Construction Assistants can help organize your business expenses. Contact us today to get started!

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