General and Trade Contractors

Project Accounting That Protects Profitability

Construction accounting must answer a question ordinary financial statements often cannot: Are we actually making money on each job?

General contractors and trade contractors operate around individual projects involving labor, materials, equipment, subcontractors, commitments, change orders, progress billing, retainage, and constantly changing costs. Accounting must therefore connect the company's financial records directly to its projects.

Accounting Setup

The foundation is a consistent job-cost structure. Projects, cost codes, labor, materials, subcontractors, equipment, overhead allocations, and other direct and indirect costs should be organized so expenses are assigned to the correct jobs.

The chart of accounts and project structure should also support estimating, budgeting, billing, and management reporting. This creates consistency between what was estimated, what has been committed, what has actually been spent, and what remains to complete the job.

Ongoing Accounting Processes

Day-to-day processes should capture vendor invoices, subcontractor costs, payroll and labor allocations, material purchases, equipment expenses, change orders, customer billing, collections, retainage, and accounts payable.

Progress billing must remain synchronized with actual project activity. Approved and pending change orders should be tracked, receivables monitored, and commitments reviewed so management isn't surprised by costs that have not yet reached the general ledger.

Management & Financial Reporting

Contractors need reporting beyond a standard profit-and-loss statement, including:

• Job-cost and project profitability reports

• Budget-to-actual comparisons

• Work-in-progress reporting

• Estimated cost to complete

• Committed and uncommitted costs

• Change-order tracking

• Progress billing and retainage

• Accounts receivable aging

• Cash-flow projections

Business Value

Strong construction accounting provides an early-warning system.

Management can identify jobs losing margin, cost overruns, billing delays, unapproved changes, collection problems, and cash shortages while there is still time to respond.

Just as importantly, completed-project information creates better historical data for estimating future work. The result is stronger bidding, better project control, improved cash management, and greater confidence that revenue being generated is translating into actual profit.