Construction accounting is a type of project accounting which involves some unique terms and requirements that differ from other businesses. A Construction company is so much different than other businesses. It is mobile and completes custom jobs on a regular basis. This requires various costs to be tracked including travel time, moving equipment and materials and much more.
To simply calculate how to break even on one contract can be difficult based on the many factors that go into this type of calculation.
When working with your accountant, you’ll need to account for the various costs that go into a construction project, and to keep accurate records it is recommended that you record costs daily or at least weekly. This will include various categories such as:
Direct costs, such as materials, equipment, land, labor and subcontractors
Indirect costs, such as transportation, supervision, equipment, maintenance and insurance
For each year a project will be worked on, one method to use is the Percentage of Completion Method. First estimate the total profit for the entire project, and multiply by the approximate percentage of the project that has been completed thus far. If a project will take more than one year (a long-term contract), you would complete the same calculation, and subtract the first year’s revenue to report for taxes.
The details that go into accounting for construction are not only necessary for tax time, but also for understanding how to bid on a project, determine which will be profitable, and confidently bill clients accurately and fairly. Cost estimation should include everything listed above, and be reviewed and updated regularly.
For more information on construction business accounting, and to learn about the financial statements required for keeping accurate records, contact us and we’ll be happy to answer your questions!