This is particularly challenging because a company’s projects are typically distributed across multiple sites, use a mobile workforce and are subject to fluctuating costs. And, projects are often large and one-off, so leaders must get the numbers right the first time. For example, construction firms typically aim to ensure that each project is profitable, which makes accurate job costing vital. Though construction accounting shares the same basic principles as accounting in most other industries, it involves a number of industry-specific concepts and challenges. Regular Accounting: What’s the Difference? The practice of job costing helps businesses estimate and analyze costs and revenue for each project, keeping projects on track and profitable. Much of the work of construction accountants is involved with tracking the individual projects that make up most contractors’ workloads. How to Account for ConstructionĪs in other industries, construction accountants perform critical activities to manage the company’s finances, such as recording transactions, managing cash flow and analyzing profitability. But despite being built on standard accounting principles, construction accounting is a specialized discipline because of the unique way construction companies operate.Ĭonstruction accountants focus on managing the cost and profitability of large, individual projects versus product lines, for example, while helping their firms manage industry practices such as retainage, specialized billing and revenue recognition methods and tracking frequent change orders.īecause construction accounting involves specialized concepts, it typically requires specialized accounting skills. Utilities Expense - water and electricity costs paid or payable to utility companiesĪnd others, such as Accounting or Bookkeeping Fees, Legal and Attorney Fees, etc.Įxpenses are deducted from revenues to arrive at the company's net income.East, Nordics and Other Regions (opens in new tab)Įfficient and accurate accounting is as vital to success in construction as in any other industry. Training and Development - costs for the enhancement of employee skills Telecommunications Expense - cost of using communication and telephony technologies such as mobile phones, land lines, and internet License Fees and Taxes - business taxes, registration, and licensing fees paid to the government Specific accounts may be in place such as Office Supplies Expense, Store Supplies Expense, and Service Supplies Expense. Supplies Expense - cost of supplies (ball pens, ink, paper, spare parts, etc.) used by the business. Salaries Expense - compensation to employees for their services to the company It is often coupled with traveling, hence the account title Travel and Representation Expense. Representation Expense - entertainment costs for customers, employees and owners. Repairs and Maintenance - cost of repairing and servicing certain assets such as building facilities, machinery, and equipment Rent Expense - cost paid or to be paid to a lessor for the right to use a commercial property such as an office space, a storeroom, a building, etc. Decrease in equity, other than distributions to equity participants - There are only two elements that decrease equity: distributions to owners (i.e., withdrawals or dividends) and expenses.It may also incur in a liability in cases of accrued expenses ( unpaid expenses). Besides cash, the company may also use other assets in paying expenses. When a company incurs an expense, it pays cash thereby decreasing assets. Decrease in assets or increase in liabilities - The decrease in economic benefits mentioned above could be in the form of a decrease in assets or an increase in liabilities.Decrease in benefits during the accounting period - Expenses are measured from period to period, and results in a decrease in economic benefits.Expenses Explainedįrom the technical definition of expense, we can draw the following points: Technically, expenses are "decreases in economic benefits during the accounting period in the form of decreases in assets or increases in liabilities that result in decreases in equity, other than those relating to distributions to equity participants". Refer to costs incurred in conducting business.
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