Setting Up a Chart of Accounts Tailored for Construction

It’s important to stay on top of your liabilities to ensure that your company can meet its short-term obligations and have sufficient working capital or access to funds. We are a subcontractor and the GC we are working for is asking us to sign and notarize progress payment line waivers for amounts they have not paid us for, is this legal? They are 60 days behind on our payment yet they are refusing to give us…

1. You can use that bank statement to reconcile your transactions to make sure they match up with your own accounting system, invoices, payments, etc.
2. These accounts track all materials purchased for project or service implementation, such as sand, cement, gravel, bricks, carpentry, electrical, plumbing materials, and more.
3. We are a subcontractor and the GC we are working for is asking us to sign and notarize progress payment line waivers for amounts they have not paid us for, is this legal?

You can add accounts as needed throughout the year, but you and your accountant should hold off on any major changes until the start of a new fiscal year. If you feel the need to revitalize your chart of accounts, always consult with your accountant first. You can structure your sub-accounts around the nature of your business and operations. If your account structure becomes too complex, the entire accounting system will be affected and you may face additional accounting issues leading to clarifications and corrections. Revising your chart of accounts every couple of months is simply not practical.

Not only will this help you prepare for tax time, but it provides an accurate accounting of profitability for each contract. Managing payroll for construction workers can be complex due to varying pay rates, overtime, and compliance with labor laws. QMK Consulting provides comprehensive payroll services tailored for construction companies, ensuring that all workers are paid accurately and on time while adhering to legal requirements. In the world of construction, financial clarity isn’t just a need—it’s an imperative. A well-organized Chart of Accounts (CoA) forms the bedrock of this clarity, ensuring every transaction, every expense, and every revenue stream is correctly categorized and accounted for.

Asset accounts belong to the first category on your chart of accounts, for example, Cash or Accounts Receivable. When you create your asset accounts, consider all the things your business owns or anticipates to own during the fiscal year. A Schedule of Values is an essential tool used in construction project accounting that represents a start-to-finish list of work… Some companies track these as administrative expenses and others track them as indirect job expenses — they are expenses that go towards a job but aren’t specific to any one entity.

Job Costing Analysis:

Accounting for a construction company involves tracking income and expenses using a Chart of Accounts, managing job costing, and ensuring compliance with financial regulations. Put some thought into carefully structuring and organizing your chart of accounts. This ensures that your financial transactions are recorded accurately and consistently.

Current Liabilities

With a large workforce and multiple projects, managing payroll can become time-consuming and stressful. Chart of accounts helps variable cost ratio to stay on top of payroll, reducing time to pay your laborers. All financial transactions need to be documented, and you need a reliable structure in place to organize your records. Creating a chart of accounts for a construction company has its challenges, but this article provides you with the foundations to get started. The chart of accounts for a construction company is used to organize financial transactions in order to build financial statements.

Long-Term Liabilities

Whether you’re a business owner or an accountant, understanding the chart of accounts will help you categorize transactions correctly, track expenses efficiently, and make informed financial decisions. The accounts in the list provide the structure for the company’s financial statements and are tailored to provide the information needed on those reports. Common reports for construction include the balance sheet, income statement, and work in progress report. A chart of accounts for a construction business is a structured list of all accounts used to organize financial transactions, tailored to meet the unique needs of the construction industry. Instead of using the COA to segment departments, divisions, or locations, construction companies should leverage the reporting dimensions available in their accounting software. To ensure accurate project costing, the COA should be fully aligned with job costing reports.

Chart of accounts setup

However, you can take a “completed contract” approach as well, which involves calculating taxes owed on each contract. A benefit of this approach is that you can track income, operating expenses, profit, and taxes on the micro-level so you gain a better understanding of where you stand on each construction project. It essentially ensures that your service price covers all overhead expenses and helps ensure you make a profit on all of your construction projects. Regular businesses typically offer 1-5 different types of products or services, whereas construction businesses offer a wide range of services. This may include service work, design services, consulting, engineering, sourcing materials, and more.

To simplify this, the balance sheet is your high-level view of finances from year to year. Underneath the balance sheet falls the income statement which depicts a specific period of time–the month of May, for example. Whether you operate a construction or service business, you need a chart of accounts (COA). In this article, we will break down everything you need to know about a chart of accounts and how your construction or service company can successfully use one. The completed contract method is mostly used by owner-builders and spec developers because the sale price is not known until the project is complete.. Using this method, revenues and expenses are recorded when the sale is closed.