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Accounting for the Construction Industry

When it comes to the construction industry, business units face a unique challenge in terms of accounting. They are required to monitor several cost categories, as the construction engineers are often mobile and offer their services in locations far away from towns and cities. The different cost categories include construction materials, labor, design and the cost of raising funds. Further, construction companies operate on a percentage completion method, where revenue is accounted based on the value of a contract and the percentage of completion.

Each job consists of direct and indirect costs that fall into a number of categories. The unique nature of construction industry necessitates companies to offer a wide range of services on several fronts further increasing the challenges in accounting for this industry. Besides, revenue is recognized when earned, neither while it’s billed nor when cash is received.

In addition, there has to be a constant watch on methods of pricing, contracts, accounting requirements and financial arrangements. A good accounting set up will help in complete analysis of the financials involved, which in turn, leads to development of a clear financial structure and refinement of accounting methods and controls. Financial visibility also helps to track and classify costs and expenses , in order to understand and make decisions on how to bid on projects, analyze the profitability of the business, bill clients accurately , and to ensure the best use of resources.

To perceive the various methods of costing, the first step in refining the process of accounting in a construction entity. Further, to understand the expenditure, value of materials at trade, and degree of complexity that the firm is capable of handling is key. It is important to have an integrated software where a construction employee can submit cost reports, time cards, and orders, which are instantly digitized and hence, become accessible. This will enable resolution of costing issues and highly accurate tracking of profitability thereby minimizing errors and ensuring better communication between the fields and accounting office. Further, when construction companies outsource their accounting services it can save a good amount of time and cost, and they can focus on development of the company.

A construction company which has set up a good accounting system with the right software and trained resources to use it, can run an efficient business. Monitoring progress and profitability goes a long way to run a successful business and further grow in the realm of the construction industry.