A Quick Guide To Construction Accounting


Accounting is a complicated subject, let alone construction accounting. There are challenges in the construction industry that others don’t have to face. Just imagine what a headache it can be to account for changing construction materials prices, or differences in labor computations according to location. That’s only two of what it covers. If you don’t know some industry secrets to staying organized with your accounting, you may just be setting up your construction business to doom.

This statement may sound overly dramatic, but there’s so much truth in it. Big and small businesses depend on a steady and robust financial situation. An efficient accounting system can then run the possibility of having erroneous financial reports, hurting your construction business’ operations.

There’s much more to learn about construction accounting, and this article walks you through a quick guide.

Hire Professional Tax Preparers To Help You

Nobody ever said, ‘Accounting is simple.’ Even the most seasoned entrepreneurs recognize they need the help of those who have spent years studying accounting and tax-related matters. And, in between the busy day-to-day operations of your construction site and the time-consuming demands of taxation and accounting, your construction site’s smooth flow of operations may suffer.

This is why you need to leave those highly technical job functions to the experts in the industry, like accountants and tax preparers. The latter are professionals who have to register with the IRS to submit returns using professional tax software. This page gives you more information about this matter.

Open A Separate Bank Account For Construction Business Finances

This tip goes without saying if you’ve been in business for so long and you’ve grown your construction business quite extensively. However, for newcomers, it’s worth remembering to open a separate bank account for construction-related inflow and outflow and a separate one for your finances. Ideally, never mix the two.

No matter how small your business may be at the moment, it’s never worth mixing business and personal funds. Doing so will only make the job of your accountant even more cumbersome. Even seasoned accountants can make mistakes, and you’re simply increasing the likelihood of this happening.

It’s easier to track the inflow and outflow of money when you know for sure which belongs to your construction business and which belongs to your funds. Moreover, this practice is what you need for long-term business stability, so you don’t wind up spending business funds for personal purposes.

Open Multiple Bank Accounts

Now you’ll have a separate account for business and personal purposes. Don’t stop there. You can go even deeper and more specifically by opening multiple bank accounts for your business. This strategy is one of the easiest ways to track revenue and expenses, both of which are the core focus of accounting.

For example, you may want to have a separate account for payroll purposes, construction materials’ procurement, and for receiving payments. The account you use to accept payments from clients can also be where you’ll transfer money to the other accounts as needed.

Practice The Job Costing Method

The job costing method means the cash inflow and outflow are properly attributed to each construction site or job. Even if all income from those construction sites technically still goes to your company’s earnings, it can streamline the accounting process when you know what belongs to this site and what doesn’t.

This system is critical, so you can monitor the income earned for each site. Otherwise, if you mix different job projects, you may use the funds from one location site to pay for the labor expenses on another. This considerably misleads your books, as you may have a higher income on another site than it generates. 

Practice The Cash Basis Method

There are generally two accounting methods that businesses can choose from cash basis or accrual basis of accounting. The most straightforward approach is cash basis, so this is what you should use for your construction business.

You’re already operating a complicated business as it is. If there’s any system or process you can use to help simplify those complexities, that would be the better choice. With the cash basis of accounting, you record the income and expenses as you receive and pay cash for them. 


The construction industry is, by itself, a very complex business. Unlike other types of businesses, there are many variables to account for in construction. And those variables can be regularly changed as to values as well. With that, it’s almost unsurprising to note that construction accounting may not be that straightforward. It’s difficult, but there’s no excuse not to learn it, as every penny counts. Hopefully, the guide above has shed more light on you about construction accounting, so moving forward, you’ll be less confused about how to go about it.


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BDC 317 : Jun 2024