How to build the chart of accounts for a construction company

Updated: Jul 11

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 new accounts, it’s best to do so at the beginning of the fiscal year. With that said, consult with your accountant to avoid confusion.


2. Design your COA around numbers

Each account on the chart of accounts contains an identification code, description, and name. When you design your COA around numbers, you end up keeping your general leger ordering systems simple.


3. Regularly review your chart of accounts

You should regularly review the char of accounts to see if any accounts contain unnecessary data. If so, just shut down these accounts to keep your chart of accounts at a manageable size.


4. Minimize the number of accounts

The chart of accounts for a construction company is typically complicated, so it’s important to define the number of accounts. This reduces the chances of having repeat and unessential accounts in your COAs. Fewer accounts mean increased processing speed and reduce bookkeeping and accounting time


How Construction Cost Accounting Can Help You Build the Perfect Chart of Accounts

Building a proper chart of accounts is an important part of setting up your accounting and bookkeeping process.

Construction Cost Accounting offers outstanding bookkeeping and accounting services. We help you build a tailored chart of accounts so you can get the most out of your accounting system. With our help, your well-designed chart of accounts can drive real business benefits, including improving your company’s job costing abilities and thus boosting your profitability.

Schedule an appointment with our experts so we can get you on the fast track to exceptional contractor bookkeeping and accounting


chart of accounts

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