Understanding Construction Accounting



Richard Waigand

Construction accounting is a specialized area that involves managing and tracking financial transactions and budgets for construction projects. It is a vital part of the construction process, as it helps ensure that projects are completed on time and within budget. In this article, we will explore several the key concepts and considerations related to construction accounting, including job costing, budgeting and financial reporting.

Job Costing

One of the primary responsibilities of construction accounting is job costing, which involves tracking and allocating the costs associated with a specific construction project. This includes materials, labor, subcontractor and any other expenses incurred during the project. Job costing helps contractors and project managers to better understand the financial performance of a project, identify any potential cost overruns and make informed decisions about how to allocate resources.


To be able to effectively manage job costs, construction companies must have a clear understanding of their budget and the scope of work for each project. This involves creating a detailed budget that outlines all the expected costs for the project, including materials, labor, subcontract costs and – do not forget – overhead expenses. Budgeting is an ongoing process that requires constant monitoring and adjustment as the project progresses and actual costs are incurred.

While small a contractor may get by with using Excel spreadsheets to monitor their actual cost to budgets, larger contractors with multiple jobs running at the same time typically must rely upon a construction industry software that helps project managers create line-item budgets and monitors actual cost against those budgets. It is critical that real time data and budget comparisons are available to identify cost overruns which will provide the necessary information for management to successfully negotiate change orders when warranted. 

Financial Reporting

Another important aspect of construction accounting is financial reporting, which involves providing regular updates on the financial performance of a project. This includes tracking costs and profits in excess of billings, and billings in excess of cost and profits, which are major components of a contractor’s balance sheet and net working capital.

Owners, management, lending institutions and bonding companies all have a vested interested in ensuring that the company is reporting timely and accurate financial statements including the underlying contracts schedules that support those financial statements. A robust system of internal controls, good estimating skills and cost tracking is critical to ensuring that a construction company’s financial statements are dependable in making critical business decisions.

Overall, construction accounting is a complex and nuanced field that requires an elevated level of attention to detail and organization. By staying on top of job costs, budgets, financial reporting and other key considerations, construction companies can better manage their financial performance and ensure the success of their projects.

Rich Waigand, CPA, is a senior partner at SFW Partners, LLC. He specializes in helping construction companies gain better and more timely information from their accounting systems and provide guidance on proper financial reporting that is relevant to management, lenders and bonding companies. For more information, Waigand can be reached at rwaigand@sfw.cpa or (314) 569-3333.

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