Construction Accounting
Vs. Regular Accounting
All Accounting Uses The Same Accounting Equation
Assets = Liabilities + Equity
Business Owners - Need three basic reports, Cash, Profit and Equity
Cash On Hand................(Bank Balance - Un-cleared Checks) = Cash
Profit And Loss Report.........................(Sales - Expenses) = Profit
Balance Sheet Report..........................(Assets - Liabilities) = Equity
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Regular Accounting - Is roughly 80% of all accounting and Accounting for businesses in the world. Its main purpose is to provide basic financial reports for annual tax returns and some very rudimentary management decisions:
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Accounts Receivable
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Accounts Payable
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Profit & Loss
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Balance Sheet
It Is Practically All that is taught in schools, colleges and universities.
Regular Accounting Is Used In Fixed Environments - Where customers comes to the place of business or at most you ship or deliver a packaged product. In essence you are selling a product or a service from a fixed location.
Regular Accounting Has These Things In Common:
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Sales - With 1-4 categories
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Cost of Goods Sold - If they sell products with 1-4 categories
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Expenses - Overhead required to maintain business operations
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Breakeven - Is fairly easy to calculate because there is a direct relationship between income and expenses on every item. It is easy to run reports to determine which items are profitable and unprofitable and make adjustments quickly as needed.
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Construction Accounting Is Roughly 15% Of All Accounting and Accounting with manufacturing making up roughly 5%. So it is given very little attention in schools, colleges and universities.
Construction Accounting Is Used In Mobile Environments - Which means having a contractors bookkeeping services system that can track the costs that contractors incur related to doing custom work in a strictly mobilization environment. Some of the costs include travel time, mobilization (packing the tools, equipment, labor and material at their warehouse, delivering everything to the job and unpacking it) before starting the work and then demobilization (reversing the entire process when the job is finished).
Construction Accounting Is Built Upon Regular Accounting and shares the same basic financial reports for operating and growing a business and preparing annual tax returns and some very rudimentary management decisions. Construction accounting adds many complex layers of reporting mechanisms to show the contractor where their best customer are within psychographic and geographic market segmentation boundaries.
Some Of The Reports Successful Contractors Use to operate and grow their construction companies and know which jobs to pursue and which ones to let go:
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Accounts Receivable
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Accounts Payable
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Profit & Loss
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Balance Sheet
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Cash Balance
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Job Costing Reports
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Job Profitability Reports
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Earned Value Reports
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Work-In-Process Reports
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Estimates Vs. Actuals Reports
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Payment Applications
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And more...
Below Are Two Diagrams For Construction Accounting Vs. Regular Accounting
When I See The Damage caused to contractors making management decisions on inaccurate reports it really hurts. There is a better way - The System Is The Solution
Our Contractor Bookkeeping Services System Is A System
Construction Accounting Is Used - When the entire place of business is packed up and taken it to the customer. In essence you are selling, assembling, delivering and installing a customized product from a mobile shop on location. Think of it like shooting a movie on location without all the glamor, resources and money to go with it.
Construction Accounting Has These Things In Common:
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Sales - With 1-10 categories
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Cost of Goods Sold - Has Direct and Indirect Job Costs with 25 - 200 categories with 1,000s of sub categories
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Expenses - Overhead is extremely complex because some expenses in regular Accounting are actually Cost of Goods Sold in construction accounting
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Breakeven - Very difficult to calculate because most projects are one-of-a-kind custom jobs. Proactive contractors have systems and cost libraries with pre-priced assemblies for bidding which works in conjunction with Strategic Construction Accounting to provide management with progress invoicing, job costing and job profitability.
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Job Costing and Job Profitability Reporting - Is similar to the Company Profit and Loss report except that it is specific to each particular job and has different expense codes. These reports in combination with the Five Key Performance Indicators are what help the contractor understand which projects to pursue and which ones to ignore. They form the foundation of a Business Process Improvement Plan and Construction Business Strategy.
Shown Below Is A Short List Of Titles commonly used for construction accounting and regular accounting. The list is intentionally short in order to make the point without being completely overwhelming.
Construction Accounting Titles = 233
Regular Accounting Titles = 115
We Never Cease Being Amazed - When we find someone who is doing the Accounting for a contractor and other unrelated industries and treats the construction business like any other business.
Example #1 - The contractor asks the bookkeeper "How much money did we make on the John and Mary Doe house remodel?" The bookkeeper generates a report showing $5,000 profit when in reality it was a ($15,000) loss! QuickBooks setup was done like every other Accounting business and $20,000 worth of transactions was put in the wrong category. In this case some direct costs and some indirect costs were misallocated and not assigned to the job.
Example #2 - The contractor asks the bookkeeper "How much money did we make on the Bob and Sally house remodel?" The bookkeeper generates a report showing ($5,000) loss when in reality it earned $5,000 profit! QuickBooks was setup wrong and $10,000 worth of transactions was put into the wrong category. In this case some overhead costs were classified as direct costs and assigned to the job.
The Inevitable Result Is - The contractor makes bad decisions on what to bid and not to bid on and eventually runs out of time and money.
For More Information See QuickBooks Setup For Contractors
Professional Accounting Services At An Affordable Price
Learn QuickBooks for Contractors through
Construction Accounting Academy
Need A Mentor? - Someone who has been were you want to go and can guide you. We would like to be that person for you. Fill out the form on the right or call Sharie 206-361-3950 or email sharie@fasteasyaccounting.com and schedule your no charge one-hour consultation
For Construction Company Owners who do not need the full power of QuickBooks for contractors and want 24/7 online access we offer Xero Accounting Online and we have custom setup for construction companies. Click Here For More.
This Is One More Example of how Fast Easy Accounting is helping construction company owners just like you put more money in the bank to operate and grow your construction company. Construction accounting is not rocket science; it is a lot harder than that and a lot more valuable to people like you and me so stop missing out! Call Sharie 206-361-3950 or sharie@fasteasyaccounting.com and schedule your no charge one-hour consultation
Profitable Contractors and Construction Company owners have known about the value of outsourced bookkeeping services and contractor coaching services like ours for a long time and now you know about it too!
We Scan Your Receipts And Invoices link the appropriate transactions to QuickBooks or Xero Accounting Online depending on the construction accounting service you are using and provide ongoing Cloud Based Contractors Bookkeeping Services by accountants who understand construction.
Our Contractor Bookkeeping Services System Is A System
Thinking About Outsourcing Your Contractors Bookkeeping Services?
Click On The Button Below To Download A Free Guide
Business Process Management (BPM) For Contractors
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Call Sharie 206-361-3950
sharie@fasteasyaccounting.com
Xero Outsourced Construction Accounting Services
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About The Author:
Randal DeHart, PMP, QPA is the co-founder of Business Consulting And Accounting in Lynnwood Washington. He is the leading expert in outsourced construction bookkeeping and accounting services for small construction companies across the USA. He is experienced as a Contractor, Project Management Professional, Construction Accountant, Intuit ProAdvisor, QuickBooks For Contractors Expert and Xero Accounting Specialist and Bill.Com Certified Guru. This combination of experience and skill sets provides a unique perspective which allows him to see the world through the eyes of a contractor, Project Manager, Accountant and construction accountant. This quadruple understanding is what sets him apart from other Intuit ProAdvisors and Xero accountants to the benefit of all of the construction contractors he serves across the USA. Visit http://www.fasteasyaccounting.com/randal-dehart/ to learn more.
Our Co-Founder Randal DeHart - Is a Certified PMP (Project Management Professional) with several years of construction project management experience. His expertise is construction accounting systems engineering and process development. His exhaustive study of several leading experts including the work of Dr. W. Edward Deming, Michael Gerber, Walter A. Shewhart, James Lewis and dozens of others was the foundation upon which our Construction Bookkeeping System is based and continues to evolve and improve.
