Construction Accounting Best Practices for Mountain West Contractors

Why Construction Accounting is Different

Unlike retail or service businesses where revenue and expenses happen in the same period, construction projects span months or years. Long project cycles — jobs can last 6–24 months, making it difficult to match revenue with costs without proper job costing. Progress billing — you bill based on percentage of completion, not when work is finished. Retention holdbacks — 5–10% of each invoice is typically held until project completion. Multiple cost types — labor, materials, equipment, subcontractors, and overhead all need separate tracking.

• Long Project Cycles — jobs can last 6–24 months
• Progress Billing — bill by percentage of completion
• Retention Holdbacks — 5–10% held until completion
• Multiple Cost Types — labor, materials, equipment, subs, overhead

Job Costing Fundamentals

Job costing is the backbone of construction accounting. It tracks all income and expenses by individual project, allowing you to see profitability on each job — not just your company as a whole. Set up job cost codes: 01-LABOR direct labor costs, 02-MATERIALS building materials, 03-EQUIPMENT equipment rental/depreciation, 04-SUBS subcontractor costs, 05-PERMITS permits and fees, 06-OVERHEAD job-related overhead. Track costs in real time — daily time tracking by job, immediate entry of material purchases with job codes, weekly subcontractor updates.

Cost-to-Complete Analysis

Each month, review estimated vs. actual costs to forecast final job profitability. If you're 50% complete but have spent 70% of budget, you've got a problem to address now — not at project end.

Work-in-Progress (WIP) Reporting

WIP reports are critical for understanding your true financial position. They reconcile what you've billed vs. what you've earned based on percentage of completion. Key concepts: overbilled (billings in excess) — you've billed more than you've earned, a liability; underbilled (costs in excess) — you've earned more than you've billed, an asset; percentage of completion is usually calculated as (costs to date ÷ total estimated costs) × contract value. Running WIP reports monthly catches overbilling or underbilling issues before they impact cash flow.

• Overbilled — billings in excess, a liability
• Underbilled — costs in excess, an asset
• Percentage of Completion — (costs to date ÷ total estimated costs) × contract value

Retention Tracking

Retention (or retainage) is the percentage of each invoice held back until project completion — typically 5–10% in the Mountain West. Manage retention receivable by tracking it per project, billing for retention release when work is complete, and reconciling it against your balance sheet monthly.