Monday, August 10, 2020

Construction Accounting vs Regular Accounting

Regular Accounting focuses on the company-wide measurements of the profitability and loss, which the Profit and Loss will show the total revenue and the expenses. Meanwhile, Construction Accounting focuses on the crucial piece of information that is allocated to a specific job, which is called Job Cost, mainly consists of materials at the warehouse, labor, subcontracts, and other expenses incurred for jobs - Direct Expense.

In Construction Accounting, the Job Cost is necessary to analyze performance on other levels, instead of just from the Regular Accounting perspective. Job Cost can be further broken down into different Cost Code when necessary.

As part of the Job Cost, there will be an Estimate Costs provided for each Cost Code of a job, which to helps in measuring the progress, measuring performance and production, and give the historical data for future estimation.

In general, Regular Accounting is measuring a company/department performance; however, the Construction Accounting is measuring a job, group of jobs, or a particular Cost Code.

Regular Accounting is dealing with all aspects of revenue and costs, including overhead and admin costs; however, Construction Accounting is dealing more with Direct Costs.

Regular Accounting usually reports in an accounting period (monthly, quarterly, or yearly); however, Construction Accounting will reports on job-to-date in addition to specific periods per job, which can cross over multiple financial/fiscal periods. An example being a construction project that needs a few years to complete such as high-rise buildings, bridges, etc. 

Construction Accounting is generally built upon  Regular Accounting, which shares the same basic financial reporting for the operating and growing a business and preparing the annual company tax returns and allows the management to make business decisions. 

On top of it, Construction Accounting adds many complex layers of reporting mechanisms to show the contractor where their best customers are within the market segmentation boundaries.

Additional reporting needed for Construction Accounting are Job Costing Report, Job Profitability Report, Earned Value Report, Work-in-Progress Report, Estimate vs Actual Report, Payment Application, etc.

In order to provide a reliable Construction Accounting Reporting, various Accounting Method that will be used are Cash, Accrual, Completed Contract, and Percentage of Completion, which needs to records on-time invoicing, and on-time expenses records for a specific job in the bookkeeping, so that it only able to provide the management with the actual progress of the job, job costing, and job profitability.

Are you looking for an Accounting System for your construction company? We have a solution for you. Contact Us.

By SYH. 

No comments:

Post a Comment