The Accounting Basics for Electrical Contractors
Electrical contractors have unique bookkeeping needs compared to contractors of other trades. A common mistake occurs when an electrical contractor hires the wrong bookkeeper, thinking that they all are the same. For electrical construction accounting, understanding accounting/bookkeeping principles is vital for providing an all-inclusive estimate and the bid process. Don’t underestimate the basics of construction accounting!
— Construction accounting basics
— Key differences between regular accounting & construction accounting
— Percentage of completion
— Project accounting technology
Construction Accounting Basics
Accounting is one of the most important aspects of management and administration in business. In firms with several moving parts, an accounting team that accurately tracks the movement of assets into and out of the company is necessary to ensure both transparency and profitability. In the construction industry, firms and contractors face unique challenges when it comes to accounting. We’ll look at what those challenges are, identify the key differences between construction accounting and regular accounting practices, and emphasize the importance of adopting a software solution to improve your accounting and help you earn more money as a construction company or subcontractor.
What’s Unique About Accounting in Construction?
Whether you’re laying the bricks or keeping the books, it’s important to understand that construction accounting is different from regular accounting. A typical business like a restaurant or grocery store uses typical accounting principles. This model works perfectly for that type of business – selling products from a fixed location. From this, the business understands the cost of each item it sells and you keep overhead relatively constant.
In contrast, construction businesses are mobile and complete customized work in novel locations on a regular basis. Thus, construction companies must monitor totally different categories of costs: travel time, mobilization costs such as packing tools and equipment, delivery of materials to the job site, and even clearing the job site of excess materials once a job is completed. In a sense, the business has no fixed location and it is moved to wherever the customer needs it, along with the materials necessary for the job.
Construction companies also use the Percentage of Completion Method, where revenue is accounted for based on the estimated profit of a contract and what percentage of that project has been completed. This makes it even more critical that construction firms implement cost-accounting methods because it enables accurate tracking of their expenses to accurately project profit and loss.
Project Accounting Technologies for Construction Companies
Construction accounting is significantly more complex than it is for most businesses. Being able to track, report and categorize costs and other expenses in your construction business is important for understanding the following:
— How to bid on projects
— Which projects are profitable for your business
— How to bill clients accurately and fairly
— How to make the most of your firm’s resources.
Accurate job costing currently requires daily reports to be generated in the field and submitted to the accounting department on a regular basis. Accountants must manually enter the reports into the accounting system regularly, a process that is time-consuming and generates backlogs on paperwork.
An integrated accounting software platform that allows frontline workers to complete and submit daily cost and progress reports, time cards, and change orders is an effective way to keep track of what costs are being incurred during a project. Better yet, the reports are accessible to both workers in the field and the accounting office instantly because they’re digital in seconds. This capability enables the rapid resolution of any costing issues and accurate tracking to ensure profitability.
Improving your electrical construction company accounting procedures starts with an understanding of the different types of costs you can incur working on a project. The next step is to categorize those costs effectively, understanding the nuances between expenses/overhead and cost of goods sold, and appreciating your firm’s capability of complex projects. The best way to ensure accurate accounting is to implement a software solution that allows workers at your firm to easily submit data on costing through an integrated accounting software platform. This practice saves time on paperwork and ensures that you never lose important data, making your firm more profitable as a result.