Simplify Your Contractor Billing Format for Accounting

Contractor billing format for Accounting

hey there it's melissa with atlas cfo today we're talking about the 10 things that you probably didn't know about construction accounting because i've got to 10 i'm going to just get right into the content because it's a little longer than i normally would spend so the first thing we're going to talk about is that construction accounting is actually very complex in normal accounting or regular accounting as i sometimes call it you have debits and credits chart of accounts and the general ledgers and then we have all of that in construction accounting and the laundry list of all the other items that we have to determine just looking at that list will give you some idea as to the first thing that we're going to cover which is construction accounting is very time intensive because we're not just dealing with two general ledger accounts we're dealing with all of those items that need to be addressed and coded we don't just code the account we're also coding the job the cost code a cost class and a whole laundry list of other items what would take a maybe a minute and regular accounting can take you three to five minutes in construction accounting understanding that it does take a little bit more time is important so that way you understand exactly what is happening in your organization the second thing you may not know is that construction accounting works best with the right software we have our own types of construction accounting software that is available to us today it wasn't always like that i am old enough to remember whenever we really had to borrow software from a manufacturing community and now we have a plethora of software that is available just for construction accounting this means that you can get the type of software that you need now instead of having to wait or starting with a general piece of accounting software because they're affordable and they're readily available so knowing that you can get this great software that is specifically built for our industry makes your life easier because you already have a tool right in your toolbox so if you're not using software that is specifically built for construction and quickbooks is not specifically built for construction you do have lots of other options available construction county has its own guidebook so in accounting we have a lot of rules you probably knew that there's a lot of rules there's a lot of procedures that we have to follow but construction accounting is just weird enough that we get our own guidebook so the aicpa has its own guidebook on how to do construction accounting because it is a different method of accounting we deserve our own special book that just gives you the understanding of how much more goes on in construction accounting and job cost accounting next up construction accounting isn't typically taught in school so in college whenever i was getting my accounting and finance degree um i did not have very much construction accounting data there really wasn't anything as far as i can remember in the curriculum we had some manufacturing and some job cost accounting which is the closest thing we really could get to the level of complexity within construction accounting what this means is if you are hiring an accountant or you have an accountant that is is new to your organization they have to be taught construction accounting they're either going to have to be taught by someone in your organization a mentor maybe your outside accountant if they're really strong in construction accounting we we weren't just um we wake up knowing construction accounting we have to be taught so knowing that it is not part of the regular curriculum helps you understand what kind of additional resources your team may need construction accounting it has notoriously timing differences because we don't get to have cost in billing all in the same day most of the time we have a build up of cost then we bill and there's always ups and downs that timing difference again adds some complexity to construction accounting there are specific methods to deal with these timing differences and if you've followed me or if you want to go back and look you can look at anything related to the whip or under and over billings that will give you that understanding of timing differences once you understand the timing differences and how to account for them the business runs smoother and performance is easier to not only see but also to project this one surprises people but construction accounting has more than one tax treatment or more than one tax method so we have a revenue-based determination here in the u.s where if you are over a certain size you are mandatory in one method but if you're under a certain size you can choose most people choose to be cash method whenever they are under 25 million and then they are percent complete method over 25 million and those numbers have even changed in the last few years because of this you can you can have your books on the accounting method of percent complete and then have to convert it to cash for tax purposes again you'll see the theme construction accounting is complex but if you understand that you have this difference it helps take away some of the confusion of why do i have two different sets of numbers at the end of the year it's perfectly correct and normal to have a different tax treatment because of all the things we've already talked about and specifically the timing differences and even whenever we get into retention construction accounting is cash flow complex because you've got the differences in timing between cost and billing and then we also have the pieces like retention paid when paid laws a paid if paid laws and even some of the requirements to pay within seven days here in the u.s cash flow can be very complex it's not as simple as just a dollar in dollar out because there are so many more pieces than that once you understand that it is complex then you can figure out a way to manage it we've spent quite a bit of time on this channel talking about cash flow for contractors we even have a course just for that in our on our website but know that you're not alone if you feel like gosh why is it so hard know that you're not alone that's just part of construction accounting okay maybe this is just for me but construction accounting is actually important when you're getting work so why is construction accounting important in getting work well when we have good construction accounting practices and good job cost data we are able to have a better estimate and when we have better estimates we know that whenever we're getting work we're going to have profit from that work i've talked about the circle so you know you estimate the job you put the work in and then you account for it and that should should just all flow together you want to make sure that those pieces all join together so that you can use your accounting information as a feedback loop for your estimates not only is construction accounting important in just getting work for estimates it's also very important for bonding and bonding and sureties are a part of getting work whenever we have a strong financial stable environment then we have a better chance of having a great bonding and surety relationship having good records does make a difference here and not only having good records but understanding what they are telling you so that you can have great conversations great relationships and it allows you to grow at a pace that you're comfortable with in summary i just summarized them not all 10 i just summarized them into just a few so that you could get the high points here which is construction accounting is is is very complex and it's time intensive knowing that helps you set expectations for what somebody can get done and also what they need to be taught and the resources they need because it's not taught in school you may need to invest in additional resources for your team or even for yourself if you're the owner cash flow and timing differences are a thing you don't need to feel alone in that that is part of our industry and part of what we have to make sure to address on a daily basis getting the right construction software helps knowing that you've got a software that is really built for you makes a big difference in getting the right data at the right time and proper construction accounting actually will get you work because you know that you've got the right information to bid the job at the right price and also have a great surety relationship that will make it so much easier so if you think this is something you want to know just a little bit more about we got you covered we created a seven-day boot camp just for financial financial information for construction business owners so that they can walk through the seven days and feel more confident about their own financial position so if that sounds like a great idea to you head on over to our website click on the seven day boot camp and you will receive a series of seven daily emails all on the topic that you need to know and we'll make it break it down make it real simple give you the resources you need thanks for spending time with me i always enjoy being able to connect this way and we'll talk to you soon bye