Article background

I usually come across messy accounting books for construction businesses. Most of the times, it’s a case when books are managed by pre-mature bookkeeper with limited or no understanding about construction specific tools and techniques. So, I thought to compile a list of common mistakes made by generic accountants.

Introduction

Construction is extremely challenging and specialized industry when it comes to bookkeeping and accounting. Generic accountants usually do not have understanding about technical aspects of overhead tracking and accounting for the construction projects.

Handing over your construction bookkeeping to generic accountants can be frustrating and hazardous if things are note monitored properly. Let’s go through common challenges observed in the context and how to fix them.

No/limited industrial knowledge

1-Job costing

Generic accountants usually mix up project transactions specially in area of construction overhead. They are unable to identify the correct project for specific accounting/banking transactions. Hence, it can be extremely challenging to determine project specific profitability in this case.

Professional advice – The best approach is to allocate transactions to the project name while posting accounting entries. If you are using QuickBooks online, transactions can be easily allocated to specific project while posting. Further, it’s a good idea to maintain job-specific Excel profitability template and weekly reconcile the Excel template with your accounting books.

2-Retainage receivable accounting

Construction projects usually need to comply with AIA. The compliance requires withholding a certain percentage of revenue. This accounting seems simple in the first sight but is extremely challenging when you’ve multiple projects and multiple progressive invoices. Hence, there is a need to ensure proper system in place to tackle this situation.

Professional advice – While generating the sales invoice – make sure you transfer agreed percentage to retainage receivable chart of account. The posting to retainage receivable needs to be part of journal entry posting the revenue. Another pro-tip is to compile excel template for the retainage and weekly reconcile template balance with your accounting books.

3-Change order management

Change order management is specific to construction only. Generic accountants do not get an idea about workflow of change order. They simply assume it to be budget update and ignore technical implications of implementing change order. For instance, they fail to create separate chart of accounts for tracking the change orders. Similarly, they are unable to determine impact of change order on the retainage (Retainage may not be applicable on the change orders as per agreement).

Professional advice

• Follow workflow for the change order management.
• Enter all the in and out of the change order in the designated Excel template for change order and weekly reconcile the same with accounting books.

4-Progress billing and revenue recognition-

It’s the most expensive area when you hire a pre-mature bookkeeper for the construction business. I’ve witnessed hundreds of mistakes and omissions when going through messy books but it’s the most obvious one and it’s extremely challenging to sort out the things as it’s related to customers.

Professional advice

• Use accounting software for revenue recognition purposes.
• Ensure all previous invoices are organized.
• Perform analytical on the overall revenue and project-specific revenue streams.

Conclusion

Generic accountants usually fail in construction because they don’t understand construction is specialized area with complex accounting like retainage, progressive billing, and change order management.

So, it’s important to ensure your books are handled by an experienced and professional bookkeeper with a solid sense of concept and numbers.

Who we are?

We are specialized construction bookkeeper/accountant helping general contractors, roofing contractors, real estate developers and builders to keep their accounting books in order.

Founded by an ACCA-qualified accountant with 10 years of construction industry experience, we understand the challenges of project-based accounting, CIS compliance, and job costing.

We combine industry-specific knowledge with modern tools to help you build a stronger financial foundation. Focus on your projects—we’ll handle the numbers. Let’s get connected!