How should I record construction accounting?
Construction accounting records every transaction with a job number attached. When you buy materials, the expense gets coded to the specific project. When you pay your crew, labor gets allocated to the job they worked on. Subcontractor invoices get tagged to the project they’re working. This job-level tracking is what separates construction accounting from regular business bookkeeping.
Revenue recognition uses percentage-of-completion or completed-contract method. Most contractors use percentage-of-completion, which means you recognize revenue as work progresses based on costs incurred relative to total estimated costs. If a $100,000 job is 60% complete based on costs, you’ve recognized $60,000 in revenue even if you haven’t billed or collected that much yet.
Progress billing gets recorded separately from revenue. When you invoice a customer for work completed, that’s accounts receivable. The revenue was already recognized as the work happened. Retainage held by the customer gets tracked as a separate receivable until it’s released after job completion.
Cash basis doesn’t work well for construction because it hides profitability. A job might be very profitable but if you bought all the materials upfront and haven’t been paid yet, cash basis makes it look like you lost money. Accrual basis with job costing shows actual project performance.
Subcontractor payments need tracking for 1099 compliance. Every check to a sub gets recorded with their tax ID so you can issue 1099-NEC forms at year end. Miss those filings and you face penalties.
Construction and trade businesses that don’t use proper job costing can’t tell which types of work are profitable. Generic bookkeeping that just tracks income and expenses by month doesn’t work. You need project-level visibility to bid accurately and make informed decisions about which work to pursue.
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More Questions
How much tax do independent contractors pay in Arizona?
Independent contractors in Arizona typically pay 25% to 35% of net income in total taxes. This includes 15.3% self-employment tax, federal income tax based on your bracket, and Arizona's flat 2.5% state tax.
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Most construction businesses should target 20-35% gross profit margin and 5-10% net profit margin. The actual numbers depend on whether you're a general contractor, specialty trade, or remodeler, and whether you're tracking job costs accurately enough to know your real margins.
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The $2500 expense rule is the IRS de minimis safe harbor election. It lets businesses immediately deduct items costing $2,500 or less per item instead of depreciating them over several years.
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QuickBooks handles data entry and reporting, but it relies on you entering everything correctly. The software won't catch categorization mistakes, provide tax strategy, or help when the IRS sends a letter. Most small businesses benefit from at least periodic professional review.
Read answerWhat are common tax mistakes small businesses make?
The most costly mistakes include mixing personal and business expenses, missing quarterly estimated payments, and misclassifying workers. Most are avoidable with proper tracking and year-round planning.
Read answerIs virtual bookkeeping worth it?
For most small businesses, yes. Bookkeeping doesn't require someone in your office. It requires expertise, responsiveness, and someone who understands your business. None of that depends on geography.
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