How to Do Accounting for Construction

How to Do Accounting for Construction: A Comprehensive Guide


Construction accounting is a specialised branch of accounting that requires careful planning, organisation, and attention to detail. Proper accounting practices are essential for construction companies to manage their finances, track expenses, and ensure profitability. In this article, we will explore how to do accounting for construction projects, providing you with a comprehensive guide to help you navigate the unique challenges of the construction industry.

How to Do Accounting for Construction

Understanding Construction Accounting

How to Do Accounting for Construction? Construction accounting differs from regular accounting in several ways due to the project-based nature of the industry. Here are some key aspects to consider:


  1. Job Costing: Construction projects are typically divided into individual jobs or projects. Each project is tracked separately, and costs are allocated accordingly. Job costing is crucial to determine the profitability of each project.
  2. Progress Billing: Construction companies often bill clients based on completion percentage. Properly tracking progress and billing accordingly is essential for cash flow management.
  3. Overhead Allocation: Allocating overhead costs to specific projects can be complex. This may include rent, utilities, and administrative expenses. Accurate allocation ensures that each project bears its fair share of overhead costs.

Setting up Construction Accounting Systems

To effectively manage construction accounting, you must establish robust systems and processes. Here’s a step-by-step guide on how to do accounting for construction:

1. Choose the Right Accounting Software:

Invest in construction-specific accounting software like QuickBooks for Contractors or Procore. These tools handle job costing, progress billing, and other construction-specific accounting needs.

2. Chart of Accounts:

Create a detailed chart of accounts that reflects the specific needs of your construction business. This includes accounts for labour, materials, subcontractors, and equipment.

3. Job Costing:

Implement a job costing system to track expenses for each project separately. This will help you determine the profitability of each job and make informed decisions.

4. Progress Billing:

Set up a progress billing system to accurately bill clients based on project completion. This ensures a steady cash flow throughout the project.

What is the importance of construction accounting?

How to Do Accounting for Construction? Construction accounting helps companies manage their finances efficiently, track project costs, and ensure profitability. It also aids in compliance with tax regulations and provides insights into the business's financial health.

How do I handle subcontractor payments in construction accounting?

Subcontractor payments should be tracked separately. Create accounts for subcontractor expenses and ensure proper documentation, including invoices and contracts. Pay subcontractors promptly to maintain good relationships.

What is retainage, and how are they accounted for?

Retainage is a portion of a contractor's payment withheld by the client until the project is completed satisfactorily. In construction accounting, retainage is recorded as a liability until it is released to the contractor.

How can I improve cash flow in construction accounting?

To improve cash flow, accurately track project expenses, bill clients promptly, and negotiate favourable payment terms with suppliers and subcontractors. Efficiently managing accounts receivable and accounts payable is also crucial.

What reports are essential in construction accounting?

Key reports in construction accounting include the Income Statement (Profit and Loss Statement), Balance Sheet, Cash Flow Statement, Job Cost Reports, and Overhead Allocation Reports. These reports provide insights into the financial health of the business.


Proper accounting practices are crucial for maintaining financial stability and profitability for construction companies. By understanding how to do accounting for construction projects, setting up suitable systems, and using specialised software, you can effectively manage your construction projects and make informed financial decisions. If you have further questions or need assistance, don’t hesitate to consult a professional accountant with experience in the construction industry.


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