How to build the chart of accounts for a construction company
Updated: Jul 11, 2022
Whether you operate a construction or service business, it’s important to have a proper chart of accounts (COA) under your belt to assess accurately your company’s financial health with ease.
A chart of accounts is the foundation of an excellent bookkeeping and accounting system. It allows you to keep track of all the money in and out of your construction company. Creating contractor chart accounts means you have a proper accounts list to account for income and expenses with extreme accuracy.
Let’s explore the definition of a chart of accounts and find out the chart of accounts is important with our comprehensive guide.
What is a chart of accounts for a construction company?
A chart of accounts is a listing of all the financial accounts in a construction company’s general ledger (GL). Accounts are grouped into categories and subcategories that correspond to the structure of a company’s financial statements.
Accounts are numbered into a commonly accepted structure and appear in the same order. Depending on the type of your construction business, an account number can be three or four digits long.
There is a broad range of charts of account examples available online, which can give you a better sense of what a contractor chart of accounts looks like. We’ve put together a partial chart of accounts examples for you to take a look at:
What makes a chart of accounts for a construction company unique?
Aside from the usual expense accounts, contractors have a variety of industry-specific expense accounts, such as business and building permits, outside labor costs, outside services, mobile restroom rental, or catering services for laborers.
Material suppliers have a simple account structure, recognizing income when materials are sold and no need to track the project progress. In comparison, the chart of accounts for construction contractors is far more complicated since they have multiple income streams and the income is recognized upon work completion.
Why a chart of accounts is important?
Generally, the chart of accounts for a construction company helps to organize financial transactions in order to provide information for financial statements. In other words, it is like a blueprint that outlines the way your financial building is being constructed:
Consistency: all recurring transactions go into the right account over the accounting period. By breaking down your revenue, liabilities, assets, and business expenditures, COA enables you to gain insight into the effectiveness of different areas of your construction company.
Accurate business decisions: Most importantly, COA provides you with an overall picture of the financial health of your company. This makes it easier to lay out reasonable growth plans. This is beneficial not just for business owners, but also for investors and shareholders, who can look at the reports to identify the time to invest.
Ease of use for employees: With an organized account structure, there’s no guesswork in where to record a new transaction, making it easy for you to locate any bit of financial data.
Tips for improving the chart of accounts for a construction company
1. Avoid frequent changes to your chart of accounts
Once you establish your chart of accounts, the best practice is to avoid changing it. Try to keep it consistent for several years so that you can more easily compare results. If you’re going to add