Fundamentals of Construction Accounting
by Bob Biehl
While most believe the construction process begins on the left at the Estimating stage, the process truly begins at the Accounting stage. Accountants must provide estimators with the right internal information before the estimator can begin. The estimator is then able to draft blueprints and enter information for job costs. Once construction begins, information is delivered to Accounting and completes the circle as the job finishes.
Since the construction process begins with the Accounting stage, common issues will naturally occur. One main issue is the accumulation of contract costs. This error is a result of the cash method used to accumulate costs resulting in unrecorded liabilities that affect cost records for contracts in progress. The correct accounting fix to this issue is to use accrual accounting as costs should be allocated to the appropriate individual contract records.
Why is being aware of your costs the most important aspect of construction accounting? It helps you:
- In the bidding process
- To determine problem jobs and people
- In the claims process
- To make better business decisions