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Accounting for Construction Companies: 11 Mistakes & Solutions

Updated: Jun 26

Managing finances in the world of construction cost accounting is a bit like constructing a building. Even minor mistakes might lead to major issues. Today, we are going to discuss eleven common accounting mistakes in construction and offer advice on how to avoid them.

Accounting Mistakes - Jump to a section:

accounting for construction companies

1. Not Keeping Regular Financial Records

Accurate, up-to-date financial records are a must in accounting for construction companies. If these records are vague or outdated, you could face issues. Problems may arise with financial statements, leading to confusion and possible accounting errors.

Solution: Always keep clear records of all transactions. Use a trusted bookkeeping system. Run regular audits for accuracy.

2. Mixing Personal and Business Finances

This mistake is common, especially among small construction companies. Mixing personal and business funds can lead to serious accounting mistakes.

Solution: Always keep personal and business finances separate. This means having separate bank accounts and credit cards and tracking expenses separately.

3. Ignoring Cash Flow Management

Cash flow is crucial in the construction industry. Poor cash flow management can lead to financial issues, possibly causing project delays or even business failure.

Solution: Regularly monitor and forecast your cash flow. Understand your pay cycles and seasonal trends. Also, be aware of any construction mistakes that could affect your cash flow.

4. Error of Commission in Accounting

An error of commission happens when a transaction is recorded incorrectly. In construction, this could mean recording material costs, labor costs, or other financial data inaccurately.

Solution: Use checks and balances to catch errors. Always double-check entries and regularly perform audits.

5. Not Using Accounting Software

In our digital world, not using accounting software is a significant mistake. Manual accounting can lead to mistakes in accounting and be time-consuming.

accounting for construction

Solution: Use industry-specific accounting software, such as Sage 100 Contractor. It helps streamline and automate your accounting tasks.

6. Neglecting Tax Planning

Not planning for taxes can lead to financial penalties. Many construction companies overlook tax considerations in their financial planning, leading to mistakes in construction accounting.

Solution: Understand your tax obligations and plan for them. Seek advice from a professional tax consultant if necessary.

7. Not Using Job Costing

Job costing is a key element in accounting in construction. It involves tracking expenses and comparing them to your project budgets. Without job costing, it's difficult to tell whether a project is profitable.

job costing and accounting in construction

Solution: Use job costing for each project. At Construction Cost Accounting (CCA), we offer expert job costing services. This helps you track costs, manage budgets, and identify profitable projects.

8. Failing to Recognize Revenue Correctly

Construction projects often span months or years. Recognizing revenue at the right time is complex. If not done correctly, this can distort your financial picture.

Solution: Use the percentage-of-completion method for revenue recognition. This method aligns revenue with a project's progress, providing a clearer financial picture.

9. Not Accounting for Retainage

Retainage is a portion of the contract price intentionally withheld until the work is complete. If you do not account for retainage, it can result in misstated financials and unexpected cash flow problems.

Solution: Keep track of retainage receivable for each project. Include it in your financial statements for a comprehensive view of your finances.

10. Overlooking Overhead Costs

Overhead costs like office expenses, utilities, and insurance often go unnoticed in project estimates. This can lead to underpricing projects and tighter profit margins.

Solution: Allocate a portion of your overhead costs to each project estimate. This ensures accurate pricing and sustainable profit margins.

11. Inefficient Work-in-Progress (WIP) Analysis

Work-in-progress (WIP) analysis gives a real-time snapshot of ongoing projects. If not performed regularly, productivity and profitability may decrease.

WIP construction cost accounting

Solution: CCA offers specialized WIP analysis services. Our services help you get a clear picture of your projects. This boosts productivity and profitability.

Avoid These Accounting Mistakes with CCA!

At Construction Cost Accounting (CCA), we are experts in accounting for construction companies. We can help you avoid these common mistakes. Our construction bookkeeping services are tailored to the construction industry. We can help your business keep its accounting straight.

Whether you struggle with keeping financial records, separating finances, managing cash flow, correcting errors of commission, or tax planning, we can help.

Accounting for Construction Companies

Our skilled team uses top tools like Sage 100 Contractor. We provide accurate, efficient bookkeeping services. We help your company keep clear and correct records. With CCA, accounting in construction is not daunting. It is a solid foundation for your business's growth and success.

We invite you to read more about construction accounting on our blogs. Or contact us directly to talk about how we can help.

In Conclusion,

Avoiding these eleven common accounting mistakes can significantly enhance the financial health and sustainability of your construction business. And, remember, you do not have to navigate these accounting complexities alone.

At CCA, we provide you with the construction-specific bookkeeping expertise your business needs. With our help, your construction firm can have a prosperous future. If you want to take a step right now toward better financial management, you can schedule a free 15-minute consultation with us.

Click here to pick a time that works for you.

construction cost accounting bookkeeping services


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