Contractor Success Map with Randal DeHart | Contractor Bookkeeping And Accounting Services
0041: Construction Accounting Vs. Regular Accounting
All Accounting Uses The Same Accounting Equation Assets = Liabilities + Equity
Business Owners - Need three basic reports, Cash, Profit and Equity
Cash On Hand................(Bank Balance - Un-cleared Checks) = Cash
Profit And Loss Report.........................(Sales - Expenses) = Profit
Balance Sheet Report..........................(Assets - Liabilities) = Equity
Regular Accounting - Makes up roughly 80% of all accounting and Accounting for businesses in the world. Its main purpose is to provide basic financial reports for annual tax returns and some very rudimentary management decisions:
#01 Accounts Receivable
#02 Accounts Payable
#03 Profit & Loss
#04 Balance Sheet
It Is Practically All that is taught in schools, colleges and universities.
Regular Accounting Is Used In Fixed Environments - Where customers comes to the place of business or at most you ship or deliver a packaged product. In essence you are selling a product or a service from a fixed location.
Regular Accounting Has These Things In Common:
#01 Sales - With 1-4 categories
#02 Cost of Goods Sold - If they sell products with 1-4 categories
#03 Expenses - Overhead required to maintain business operations
#04 Breakeven - Is fairly easy to calculate because there is a direct relationship between income and expenses on every item. It is easy to run reports to determine which items are profitable and unprofitable and make adjustments quickly as needed.
Construction Accounting Is Roughly 15% Of All Accounting and Accounting with manufacturing making up roughly 5% which is why it is given very little attention in schools, colleges and universities.
Construction Accounting Is Used In Mobile Environments - Which means having a contractors bookkeeping services system that can track the costs that contractors incur related to doing custom work in a strictly mobilization environment.
Some Costs Include travel time, mobilization (packing the tools, equipment, labor and material at their warehouse, delivering everything to the job and unpacking it) before starting the work and then demobilization (reversing the entire process when the job is finished).
Construction Accounting Is Built Upon Regular Accounting and shares the same basic financial reports for operating and growing a business and preparing annual tax returns and some very rudimentary management decisions. Construction accounting adds many complex layers of reporting mechanisms to show the contractor where their best customer are within psychographic and geographic market segmentation boundaries.
Some Of The Reports Successful Contractors Use to operate and grow their construction companies and know which jobs to pursue and which ones to let go:
#01 Accounts Receivable
#02 Accounts Payable
#03 Profit & Loss
#04 Balance Sheet
#05 Cash Balance
#06 Job Costing Reports
#07 Job Profitability Reports
#08 Earned Value Reports
#09 Work-In-Process Reports
#10 Estimates Vs. Actuals Reports
#11 Payment Applications
#12 And more...
When I See The Damage caused to contractors making management decisions on inaccurate reports it really hurts. There is a better way - The System Is The Solution
Our Contractor Bookkeeping Services System Is A SystemIf you want to learn more about our contractor bookkeeping system please http://www.fasteasyaccounting.com/our-construction-bookkeeping-services-system-for-contractors/
Construction Accounting Is Used - When the entire place of business is packed up and taken it to the customer. In essence you are selling, assembling, delivering and installing a customized product from a mobile shop on location. Think of it like shooting a movie on location without all the glamor, resources and money to go with it.
Construction Accounting Has These Things In Common:
#01 Sales - With 1-10 categories
#02 Cost of Goods Sold - Has Direct and Indirect Job Costs with 25 - 200 categories with 1,000s of sub categories
#03 Expenses - Overhead is extremely complex because some expenses in regular Accounting are actually Cost of Goods Sold in construction accounting
#04 Breakeven - Very difficult to calculate because most projects are one-of-a-kind custom jobs. Proactive contractors have systems and cost libraries with pre-priced assemblies for bidding which works in conjunction with Strategic Construction Accounting to provide management with progress invoicing, job costing and job profitability.
#05 Job Costing and Job Profitability Reporting - Is similar to the Company Profit and Loss report except that it is specific to each particular job and has different expense codes. These reports in combination with the Five Key Performance Indicators are what help the contractor understand which projects to pursue and which ones to ignore. They form the foundation of a Business Process Improvement Plan and Construction Business Strategy.
For a Short List Of Titles commonly used for construction accounting and regular accounting click here
There are 233 Construction Accounting Titles compared to 115 Regular Accounting Titles
We Never Cease Being Amazed - When we find someone who is doing the Accounting for a contractor and other unrelated industries and treats the construction business like any other business.
Example #1 - The contractor asks the bookkeeper "How much money did we make on the John and Mary Doe house remodel?" The bookkeeper generates a report showing $5,000 profit when in reality it was a ($15,000) loss! QuickBooks setup was done like every other Accounting business and $20,000 worth of transactions was put in the wrong category. In this case some direct costs and some indirect costs were misallocated and not assigned to the job.
Example #2 - The contractor asks the bookkeeper "How much money did we make on the Bob and Sally house remodel?" The bookkeeper generates a report showing ($5,000) loss when in reality it earned $5,000 profit! QuickBooks was setup wrong and $10,000 worth of transactions was put into the wrong category. In this case some overhead costs were classified as direct costs and assigned to the job.
The Inevitable Result Is - The contractor makes bad decisions on what to bid and not to bid on and eventually runs out of time and money
This is one more example of how Fast Easy Accounting is helping construction company owners just like you put more money in the bank to operate and grow your construction company. Construction accounting is not rocket science; it is a lot harder than that and a lot more valuable to construction contractors like you so stop missing out and call Sharie 206-361-3950 or email sharie@fasteasyaccounting.com
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