Construction Job Costing Software for Subcontractors

Many construction companies use a “completion percentage” approach, meaning they calculate estimated taxes based on quarterly income and expense reports. The following steps can help you get your construction accounting started on the right foot and help you stay on top of your bookkeeping and financial management. In this guide, we address some of those challenges and cover the basics of construction accounting.

Though job costing takes more work, it’s the only way to accurately measure a contractor’s profitability by matching cost inputs with the related revenues. Keeping costs in check over the course of a long construction project requires highly skilled estimating and an extensive knowledge of the build process. Being good with numbers or being an experienced contractor is simply not enough to deliver accurate cost projections.

Accrual method

Your construction company must pay social security tax, workers’ compensation, federal unemployment tax, and perhaps other local tax on the wages of employees. However, when you pay independent contractors, you don’t have to worry about those expenses. According to the IRS, small companies can use the cash method of accounting for tax purposes, but large companies cannot. Plus, small companies can use CCM, avoiding PCM, for contracts up to two years, whereas large companies must use PCM for long-term contracts.

However, if control transfers over time, then revenue for each performance obligation is recognized as it is completed. Contracts may dictate that control phases in for each https://www.newsbreak.com/@cnn-edits-1668599/3002242453910-cash-flow-management-rules-in-the-construction-industry-best-practices-to-keep-your-business-afloat performance obligation, rather than when the obligation is completed. In that scenario, financial results for the obligation would be recognized using a PCM approach.

Open Multiple Bank Accounts

In construction, billing can be much more complex, largely because of the long-term and flexible nature of many projects. Retainage is commonly applied to both private-sector and public-sector projects; the regulations for handling retainage vary from state to state. Because many contractors operate on relatively low profit margins, the amount withheld for retainage can represent a large portion of a project’s profit. To mitigate their risk, contractors may in turn withhold retainage from their subcontractors.

Lorman Education Services offers construction project accounting training that is accessible and up to date. Our programming aims to develop well-rounded professionals capable of guiding a major project to success, from the initial bid to the final accounting. Explore our courses using the links on this page, or contact our customer response team directly to learn more.