Sep 30, 2023 Author: Accounts Junction
If you are a contractor, then you must be a busy person with a lot of business activities to do. However, an efficient accounting system is also very important for the contractors.
This will be helpful to keep the finances of the business better. Although the basic aspects of accounting are same here, accounting for contractors needs to have a different approach.
Construction companies have some unique characteristics, due to their different nature of work. In this guide, you will get to know a few aspects of contractor accounting and bring efficiency to accounting.
How is the accounting for contractors different?
The nature of work, pricing per project, revenue recognition, fluctuation in the operating cost, cost of the job, and several other aspects make accounting different for contractors.
As the requirements for the contractors are different with respect to project bids, tracking accurate costs, wage requirements management, etc., the contractor accounting must follow proper accounting methods.
What are the different accounting methods for contractors?
Some of the accounting methods options for the contractors are given below:
- The cash method
- The completed contract method
- The percentage of completion method
- The contract retainage method
- The fixed price method
How to bring efficiency in accounting for contractors?
Some tips will be effective in bringing accounting efficiency to the contractors.
Here are a few vital tips for bringing an efficient contractor accounting system:
Breaking down cost as per project
As the project is at the core of contractors business, so cost is broken down as per the project. The revenue and expenses can be easily tracked using the project-based costs. This will help to check the performance of the business as per the projects.
Separating business and personal accounting expenses
When the business and personal expenses are separated, tracking of the expenses and profits becomes simpler. Even if you are a single person working as a contractor without any employee, separating business and personal expenses is advisable. Here, you will need Personal identification, employer identification number, business license copy, etc.
Financial transactions recorded on a day-to-day basis
Recording of the financial transactions on the daily basis, at proper places in the accounting books. The record must mainly include transaction date, description of transactions, and revenue received. A few accounting software, also provides invoice as per contractors business.
Select method of revenue recognition
General business would have revenue recognition simpler, as simply products or service is sold, while contractors would have different business method. While doing accounting for contractors, methods like Percentage of completion method, complete contract method, etc. are some of the methods for the revenue recognition.
Using suitable accounting software
Using suitable accounting software can be more beneficial for contractor accounting. It can automate most of the accounting task for the business of contractors.
These are some important tips for accounting for contractors that can improve the quality. Understanding the contractors business pattern is essential to bring accounting efficiency.
If you are a contractor who is looking for experts to provide accounting for contractors, then Accounts Junction is a better option. Accounts Junction has the expertise in handling contractor accounting for contractors.
They have good knowledge of working of the contractors. Accounts Junction is quality contractor accounting service providing agency across the globe.
