How to Set Up a Double Entry Accounting System for Your Business
- Cost Construction Accounting
- Jun 3
- 4 min read
Keeping proper financial records is very important for running a construction firm because it helps you understand how much money you're producing, how to manage your cash flow, and how to make smart choices. Using a double entry accounting system is one of the most dependable ways to do this.
This post will show you how to put up a system like this, which is especially useful for contractors and construction firm owners. This guide gives you the information and structure you need to confidently manage your money, whether you're just starting off or want to improve your present arrangement.
What Is a Double Entry Accounting System?
The double entry accounting system is a method of bookkeeping where every financial transaction is recorded in at least two accounts: a debit in one account and a credit in another. This system ensures the accounting equation (Assets = Liabilities + Equity) stays balanced, offering a complete view of your financial health.
Why Is It Important for Contractors?
Transactions in the building industry often involve many people, from suppliers to subcontractors. This makes it very important to keep correct records of income and expenses. Using double entry helps you avoid common problems like missing costs or overstating your income.
Step-by-Step to Setting Up a Double Entry System
1. Define Your Business Structure and Goals
Figure out the type of business you have (sole proprietorship, LLC, S Corp, etc.) before you set up your financial system. This will change how you report your income and spending and what accounts you need to set up in your chart of accounts.
2. Set Up the Chart of Accounts
The chart of accounts setup forms the foundation of your system. It categorizes every financial transaction into accounts such as:
Account Type | Common Accounts for Contractors |
Assets | Bank accounts, Accounts receivable, Equipment |
Liabilities | Loans, Accounts payable, Credit cards |
Equity | Owner’s equity, Retained earnings |
Income | Construction revenue, Change orders |
Expenses | Materials, Subcontractors, Permits |
Start with accounts relevant to construction work and add others as your business grows.
3. Choose Your Accounting Software or System
Whether you're using spreadsheets, QuickBooks, or a dedicated accounting system for small business, your tool must support double entry. Software should allow:
Recording journal entries for contractors
Managing invoices and payments
Generating financial reports
Syncing with your bank
4. Record Initial Balances
If you’re transitioning from a single-entry or manual method, enter your starting balances in each account. This ensures your books reflect accurate figures moving forward.
5. Begin Recording Transactions
Each transaction should impact at least two accounts. For example:
Transaction | Debit | Credit |
Purchase of materials | Materials Expense | Bank Account |
Client invoice issued | Accounts Receivable | Construction Revenue |
Loan payment (principal) | Loan Payable | Bank Account |
Understanding how to record transactions properly is key to keeping your books balanced.
Common Questions Contractors Ask
What’s the difference between single entry and double entry?
Single entry records only one side of a transaction (e.g., cash in or out), while double entry captures both aspects. For example, buying equipment would increase assets and decrease cash, offering more clarity.
How does this help with financial reporting?
The general ledger setup in a double entry system allows you to generate reports like:
Income Statement
Cash Flow Statement
These are essential for loan applications, tax filings, and investor transparency.
What if I make an error?
Errors are easier to catch because if the books don’t balance (Total Debits ≠ Total Credits), something is wrong. This self-checking feature makes double entry ideal for bookkeeping for construction.
Sample Journal Entries for Contractors
Date | Description | Debit | Credit |
06/01/2025 | Invoice to Client A | A/R $12,000 | Revenue $12,000 |
06/02/2025 | Bought lumber from vendor | Materials $4,000 | Bank $4,000 |
06/03/2025 | Paid subcontractor | Subcontractor $3,000 | Bank $3,000 |
These examples demonstrate the daily use of a double entry bookkeeping guide tailored to contractors.
Managing It Yourself or Seeking Help?
A lot of contractors can use software to set up and do simple entries on their own. But as your projects get bigger, they get more complicated. For example, keeping track of job costing, retainage, or WIP plans might need the help of a professional.
If handling the system takes too much time or you're worried about making mistakes, you might want to get help. At this point, outsourcing can help you focus on running your business while making sure your books stay true and in line with the law.
How Construction Cost Accounting Can Help
While many contractors start off managing their own books, there comes a point when it's more practical and cost-effective to delegate. At Construction Cost Accounting, we specialize in helping construction businesses implement and maintain robust accounting systems.
We provide:
Customized construction bookkeeping solutions
Ongoing support for financial reporting
Systems tailored for contractors, builders, and subcontractors
If you're ready to move beyond spreadsheets or need a reliable team to keep your finances on track, our experts can help streamline your operations, minimize risks, and improve financial visibility.
Conclusion
At first, setting up a double entry accounting system might seem hard, but it's an important step toward long-term growth and financial control. Your construction business will be more accurate, follow the rules, and have peace of mind if you have the right tools, clear methods, and maybe even some professional help.
If you don't know where to start or want to make sure you've done everything right, don't be afraid to look into support options that are made for your business.
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