A balance sheet provides a snapshot of what a company owns and owes at a specific date. It addresses the fundamental equation that assets equal liabilities plus owner’s equity.
Assets include cash, marketable securities, investments, inventory, equipment, and prepaid expenses. Liabilities include debts, accounts payable, and wages payable.
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Keeping Track of Project Costs
For construction firms, keeping track of project costs is one of the most critical aspects of ensuring that projects are completed on time and within budget. With practical strategies, a construction business may meet deadlines and incur unplanned project expenses that threaten profit margins.
Cost information can be collected from various sources, including paper and digital invoices, receipts, spreadsheets, reports, and software tools. Depending on the size of a company and project requirements, the person responsible for tracking costs may be a project manager (or their assistant), a project accountant, or an accounting administrator.
A typical chart of accounts for a construction firm would include several hundred different cost accounts, including materials and equipment used to project office expenses. By regularly reviewing and updating job cost sheets, contractors can monitor budget adherence in real time and take timely action to prevent cost overruns. A consolidated financial report presenting cost and revenue information is also essential for project management.
Keeping Track of Payments
Long-term construction contracts require a system that documents the work performed and records all payments received throughout an accounting period, which can be years long. This can present challenges in tracking and reporting all payments made and invoices sent.
Rather than relying on Excel spreadsheets or a rudimentary notepad, use a program that streamlines communication and increases accuracy. An online profit platform like QuickBooks allows real-time financial collaboration from multiple devices and locations. It automates invoicing and tracks income, receipts, expenses, and other transactions. This eliminates wasted time on manual processes, enables faster payment processing, and improves data integrity.
It also manages payroll and tracks compliance documents — essential for subcontractor and independent contractor management. No more bouncing between texts, emails, and voicemails — all client communications are recorded in one place. And it helps you stay ahead of deadlines with automated alerts that help prevent a budget overage. It also provides production reports and consolidated financial information at your fingertips, even in the field.
Keeping Track of Inventory
For many construction companies, focusing on the project at hand takes priority over accounting and tracking inventory, like the impact of bookkeeping for construction companies. However, ensuring that all materials and equipment are properly managed is crucial for maintaining the quality of work and avoiding wasted resources.
Construction firms must implement a high-quality inventory management software solution that integrates with their accounting system to ensure a seamless workflow and accurate tracking. Having this information at their fingertips allows them to more efficiently manage all aspects of inventory management, including warehouse, purchasing, and receiving, minimizing waste and lost productivity.
For instance, a construction company can use its inventory software to keep track of the exact amount of raw materials, such as lumber and iron and steel bars, they have on hand. Then, as production orders for various projects are issued, the software can automatically deduct the cost of the raw materials and add the finished product’s quantity. This gives them the information to order additional supplies or restock before future project phases.
Keeping Track of Profit and Loss
In construction, profit and loss statements are a vital part of accounting. These specialized financial statements help companies see where they’re making and losing money, and they can then take corrective action before profitability is negatively affected.
Managing profits and losses can be tricky for a business that relies on long-term contracts and substantial upfront investments. A robust financial management program like QuickBooks for Construction can alleviate these challenges by combining payroll, project tracking, accounting, and job costing into one centralized platform.
Instead of communicating with subcontractors through emails and logging expenses manually, use an accounting software program that automatically categorizes transactions, runs detailed reports, and uploads receipts with a photo. It’s the easiest way to increase accuracy and reduce wasted time on outdated processes.