Last Updated on May 13, 2025 by Caesar
In any business, you need a proper accounting system to function. The same is true for the field of construction. This is why you can find a specialised field known as construction accounting which deals with accounting in the field of construction.
That’s because it is hard for a common layman to maintain records of all the aspects of a construction business altogether. In this post, we will discuss more about this fascinating field below.
What is Construction Accounting?
It is a particular field of accounting that deals with the financial needs of the construction industry, such as in the case of logistics and production of raw materials.
This field of accounting also deals with the financial challenges in the construction industry like increased cost of raw materials, delays in the arrival of required shipments, and so on.
Furthermore, unlike traditional accounting, construction accounting involves specialised financial statements like a construction progress report, for example.
Difference between Regular Accounting and Construction Accounting
In certain areas, the fields of traditional accounting and construction accountingoverlap. However, since the construction industry is project-based, there are some vital differences.
For example, every construction firm prefers to focus on costs related to the production of raw materials, the per-square-unit cost calculation of buildings, and so on. Another difference is that construction industry professionals use different vendors depending on the project in hand.
That’s why this industry involves many fluctuating costs. Let’s now consider some other vital differences below:
● Project-based Accounting
The main difference that separates construction from general is its project-based requirement.
Project-based construction accounting concentrates on the financial transactions that are solely related to the project. It allows firms to monitor the financial implications and plan how to execute their work based on the terms of the contract.
● Production costs
As we mentioned previously, construction companies deal with multiple projects over a period of time. That’s why they often utilise the services of different vendors.
This leads to a difference in the production costs, execution costs, and overall budget. In some instances, your Vancouver accountant might need to travel to the site to check the shifṭ in the budgets.
On the other hand, typical accounting generally involves a stable set of costs like employee salaries, and vendor payments.
● Irregular and Long-Time
Regular accounting is negotiable because you know when the financial year will end. This ensures that the process of data collection is predictable, and involves no changes.
On the other hand, construction projects take a long time to complete. There is no fixed duration as to when a project will be over. Therefore, the costs will remain variable and unpredictable and will be mitigated with labor recruitment and raw material shortages.
Construction accounting therefore involves the process of maintaining records regarding all these aspects.
Components of Construction Accounting
The components of Construction accountingshape the entire project cycle and vary on your project’s needs and risks involved. Let’s take a look at them below:
● Project Pricing
You need to accurately calculate the various costs associated with the project you’re working on. For instance, if you’re working on a project that involves building a flat, the costs associated with the project will involve:
i) Living room cost
ii) Guest room cost
iii) Master bedroom cost
iv) Balcony cost
Therefore, the project pricing here will involve the total of all the costs mentioned above.
● Recognising Contact Revenue
Revenue recognition is a difficult topic due to its long-term policy. It depends on several factors such as the size of the business and the type of project your company is working on.
In simple terms, it refers to acknowledging and logging the revenue received from customers after the successful completion of a project.
● Construction Billing
This is one of the key essential things a Vancouver accountant does for your business. In many industries, billing takes place at the time of sale or on a fixed monthly basis.
However, in the construction area, billing can be a complex issue due to the long-term nature of the projects.
Suppose, you are working on a project that stops suddenly due to a particular reason. It is not possible for you to always remember the costs since you are working on several projects simultaneously.
So, your Vancouver accountantwill help you maintain records and clear your bill paymenṭs.
● Knowing the Financial Rules and Regulations
Different local regions have their own set of rules, regulations, and policies. So you should be aware of all these things to ensure that you do not violate any local laws. Your accountant will help you stay updated with these rules and regulations.
Wrap Up
While construction accounting can be complex, consulting the right company can help you stay on track with your projects in a hassle-free manner. So you should be very careful in choosing this company, as it make or break your business.
