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What Accountants do for Construction Companies

Accountants interpret documents relating to business transactions to produce a picture of the business’s financial health. Accountants, just like contractors, offer different levels and areas of expertise. Deciding on the type of accountant that is best for your construction company depends on your ability to understand accounting and the complexity of your business.

Typically, the more employees, the more complex accounting becomes; however, a contractor using subcontractors, along with having capital assets can also have very complex accounting.

Types of Accountants

Bookkeeper

  • Issue Invoices
  • Pay expenses
  • Record sales and expenses
  • Prepare reports
  • Run payroll

Accountant

  • Performs any procedure a bookkeeper performs
  • More experience and education than a bookkeeper
  • More responsibility for complex situations than a bookkeeper
  • Has tax training

Quickbooks Accountant

  • Uses Intuit Quickbooks software products
  • Improves skills with Quickbooks training and certifications
  • Offers a range of services with remote, online, or in-office options

Certified Public Accountant (CPA)

  • 150 hours of college-level accounting
  • Must pass an exam
  • Maintains continuing education
  • Financial advising, tax preparation, auditing
  • May serve as an enrolled agent

Enrolled Agent

  • Must pass an exam
  • Must complete 72 hours of education every 36 months
  • Authorized by the IRS to represent taxpayers in tax matters
  • Tax planning, tax preparation

Payroll Specialists

  • Handles all aspects of payroll
  • Ensures compliance

Accounting for Construction

Accounting for construction is complex and involves several types of accounting: financial, managerial, cost, project, auditing, and tax.

When income and expenses are tracked to a specific project, it is known as job costing.  Each project is tracked individually for profitability. Financial information gathered throughout the project is used to determine whether there is a profit or loss and used by project managers to estimate potential projects.

Accounting Tasks

Accountants enter information from documents such as invoices and receipts into accounting software and use the compiled data to create reports for business planning and taxes.

Accounting tells the story of the businesses worth and provides information needed to determine credit worthiness, profitability, and for taxation purposes.

An accountant can help an owner understand financial reports and provide them with information for budgeting, loan applications, insurance claims, job costing, and more.

Accounting Responsibilities

Receivables/Payables

  • Invoice clients
  • Pay vendors
  • Track income and expenses
  • Collections
  • Monitor balances

Assets/Liabilities

  • Track loans
  • Track depreciation

Reconciliations

  • Balance accounts
  • Reconcile discrepancies
  • Monthly closings

Financial Statements and Reports

  • Prepare Income Statement, Balance Sheet
  • File sales tax reports
  • Prepare budget reports

Payroll

  • Pay employees
  • Calculate deductions
  • File payroll reports
  • Pay payroll taxes

Tax Preparation

  • Prepare tax returns
  • Provide tax advice

Other

  • Analyze cash flow
  • Assist with audits
  • Ensure compliance with laws and regulations

Receipts

Receipts for construction companies may be obtained at the point of sale or received through email. It is now common for accountants to login into an online account to retrieve receipts.

Accountants capture information on receipts and associate it with the proper job. For that, either a purchase order system is used or the job name must be indicated on the receipt or invoice. Typically the purchaser hand writes the job name at the top of each receipt.

Purchase orders typically require a unique number for purchases. A purchase order is a confirmation for the seller to generate an order for a buyer.

If a unique number isn’t necessary, using the job name as a PO number is an easy way to identify a job for job costing.

Classifying Expenses

Tools, materials and supplies, and equipment are often misclassified, but there is a difference.

  • Tools
    • Useful life less than a year
    • Classified as an expense
  • Equipment
    • Expected to last more than a year
    • Considered a capital asset
    • Is depreciated
  • Materials and Supplies
    • Used to complete the project
    • Cost of Goods Sold (COGS)

Incorrect classification affects job costing and financial reports by showing profit and assets to be higher or lower than they actually are.

Job Costing

If you want to know how precise your accountant is, add a candy bar to your materials, and see if the accountant catches it on the receipt.

Accountants for construction companies review each line item to determine the classification. They decide whether each line item is a job cost, tool, equipment or belongs in another category unless a construction manager has reviewed the receipt and classified everything on it.

Who cares about a candy bar?

The owner of the project does. In most cases, the owner would never see the receipt but in some cases, the receipt may be reviewed by the owner. Putting personal items and mixing them in with materials and supplies looks unprofessional.

The accountant cares; it’s an extra time-consuming step to pull out the candy bar and recalculate the receipt. The accountant may pass the cost of the time involved to the business owner. So please, on behalf of all accountants, keep personal items off business receipts.

Small tools such as screwdrivers that are not “used up” on a project are treated as an expense rather than a Cost of Goods (COGS) materials and supplies. Some items such as saw blades can fall under either category depending on durability and usage. Saw blades with a short life and cannot be re-sharpened are considered COGS materials and supplies, while saw blades that can be re-sharpened and reused are considered a tool.

Purchase tools and equipment separately from materials to avoid incorrectly coding items to projects, which overstates job costs.

Work-in-Progress (WIP)

Work-in-Progress is an inventory account for projects from development until completion. When completed, the project is moved to the balance sheet and becomes a fixed asset on the chart of accounts.

Think of Work-in-Progress as a way to synchronize the cash flow for long-term contracts. It provides a value for work during a snapshot in time prior to completion.

Work-in-Progress is used to prevent overbilling and underbilling. Work-in-Progress adjusts billing for the percent of completion for sufficient cash flow throughout the entire project; this assures funds to cover expenses at the end of the project.

In-House Accountants

Accounting may be only a portion of the responsibility an in-house accountant takes on.

In-house accountants may serve as the office manager with administrative responsibilities. They may participate in project development, human resources, and miscellaneous tasks.

In a large construction company, accountants may have specific roles such as accounts/payable specialists, payroll specialists, or supervising other accountants.

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