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how important is accounting in your business do you own a construction company and wondering if you hired the wrong bookkeeper the only way to start right is to make sure your bookkeeping is set up right first we must understand the difference between construction accounting and regular accounting all accounting uses the same accounting equation the three o is the contractor's account that Randle says what you own what you owe and what is left over now every business owner needs three basic report cash profit and Equity regular accounting is roughly 80% of all accounting for business in the world and is concerned with the basic Financial reports which are used for preparing annual tax returns and some rudimentary management decisions it is practically all that is taught in schools colleges and universities construction accounting is roughly 15% of all accounting and accounting with manufacturing makes up roughly 5% so it is given very little attention in schools 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 construction accounting is used when the entire place of business is packed up and taken 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 glamour resources and money to go with it regular accounting and construction accounting has these things in common in sales regular accounting usually has one to four categories construction accounting has 1 to 10 categories of products and or Services cost of goods sold if they sell products with one to four categories in construction it has direct an indirect job cost with 100s of categories expenses or overhead are required to maintain business operations but it is extremely complex because some expenses used in regular bookkeeping are actually direct and indirect cost of goods sold in construction accounting Break Even is fairly easy to calculate in regular accounting 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 make adjustments quickly as needed in construction accounting it is difficult to calculate because most projects are oneof a kind custom jobs proactive contractors have systems and cost libraries with pre-priced assemblies for bidding which works in conjunction with strategic construction bookkeeping provide management with progress invoicing job costing and job profitability take for example contractor a asks bookkeeper how much money did we make on the John and Mary do house remodel the bookkeeper generates a report showing $5,000 profit when in reality it was a $115,000 loss QuickBooks setup was similar to every other accounting business and $20,000 worth of transactions was put in the wrong category some direct and indirect cost from Mis allocated and not assigned to the job contractor B asks 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 QuickBook setup wrong means $10,000 worth of transactions are in the wrong category in this case some overhead costs were classified as direct cost and a assign 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 when job costing and job profitability reports come in handy they are similar to the regular bookkeeping 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 contractors understand which projects to pursue and which ones to ignore they form the foundation of a business process Improvement plan and construction business strategy so if you're looking to hire a construction accountant make sure that that person understands what you do part of QuickBooks setup for contractors is having a QuickBooks expert with a deep background in construction accounting who understands what your Construction Company needs I hope you find this video formative and remember if you are a contractor you deserve to be wealthy because you bring value to other people's lives fast easy accounting provides free 1hour consultation take the first step and schedule yours today call Sherry at 206 361 3950 or email Sherry at fasty accounting.com thanks for watching