Construction bookkeeping is fundamentally different from standard business bookkeeping. The project-based nature of construction, combined with long billing cycles, job costing requirements, and California-specific compliance rules, means standard bookkeeping methods simply don’t work. This guide explains how to do bookkeeping for a construction company — and when to call in a specialist.
If you’d rather skip the DIY route and hire a professional, Bookkeeping Champs specializes exclusively in construction bookkeeping in Los Angeles, San Fernando Valley, and Ventura County. Call (818) 679-4451 for a free consultation.
Step 1: Set Up the Right Chart of Accounts
The chart of accounts is the backbone of your bookkeeping system. For construction companies, you need a specialized chart that includes:
- Income accounts by revenue type (e.g., Contract Revenue, Change Order Revenue, Equipment Rental Income)
- Cost of Goods Sold (COGS) accounts by cost type: Direct Labor, Materials, Subcontractors, Equipment, Other Direct Costs
- Job Expense accounts tied to individual projects
- Overhead accounts for indirect expenses (office rent, insurance, vehicles not billed to jobs)
- Balance sheet accounts including Retainage Receivable, Retainage Payable, Work in Progress (WIP), and Deposits
QuickBooks for Contractors includes a pre-built construction chart of accounts as a starting point. This can save significant setup time.
Step 2: Set Up Job Costing
Job costing is the process of tracking all costs and revenue for each individual project. It’s the most important bookkeeping feature for construction companies because it tells you which jobs are profitable and which are not.
To set up job costing in QuickBooks:
- Create a Customer record for each project (or use QuickBooks Projects if using QBO Plus/Advanced)
- Assign all job-related expenses to the appropriate customer/project when recording bills and checks
- Set up cost codes (e.g., 100-Site Work, 200-Foundation, 300-Framing, etc.) as Classes or Service Items
- Run the Job Profitability Summary report regularly to compare estimated vs. actual costs
Step 3: Use the Percentage of Completion Method
Construction companies typically use one of two revenue recognition methods: Percentage of Completion (PCM) or Completed Contract Method (CCM). Most contractors with long-term projects use PCM, which recognizes revenue proportionally as work is completed.
This requires maintaining Work-in-Progress (WIP) schedules that track:
- Original contract value
- Approved change orders
- Costs to date
- Estimated costs to complete
- Percent complete
- Earned revenue to date
- Billings to date
- Over/under billing position
Step 4: Manage Progress Billing Correctly
Construction billing is different from standard invoicing. Most commercial projects use AIA billing (G702/G703 forms) — a standardized billing application that shows the schedule of values, work completed to date, retainage held, and net amount due.
Residential contractors often use simpler progress billing tied to construction milestones. Either way, your bookkeeping must track:
- What you’ve billed on each job (billings to date)
- What’s been collected vs. what’s outstanding
- Retainage withheld (both what you hold on subs and what GCs hold on you)
- Change orders — approved, pending, and disputed
Step 5: Handle Payroll Correctly for California
California construction payroll has specific requirements that make it more complex than other industries:
- Prevailing Wage / Certified Payroll — Required for all public works projects; must be submitted to the DIR via eCPR online
- Daily Overtime — California requires overtime after 8 hours in a day (not just 40 hours/week)
- Piece Rate Rules — Special requirements if any workers are paid piece rates
- Workers’ Comp — Construction workers must be covered; misclassification as independent contractors carries major penalties
- Paystub Requirements — California has strict paystub requirements; violations carry $50–$100 per employee per pay period in penalties
Step 6: Track Subcontractors and 1099s
If you use subcontractors, you must:
- Collect a signed W-9 from every sub before issuing first payment
- Verify CSLB license status (required for subs performing licensed work in California)
- Collect Certificates of Insurance annually
- Track total annual payments per sub
- Issue 1099-NEC to any sub paid $600+ in the year by January 31
- File 1099 information with the IRS and California FTB
Step 7: Reconcile Bank Accounts Monthly
Monthly bank reconciliations catch errors, identify fraud, and ensure your books match your actual cash position. For construction companies, this includes reconciling business checking, payroll accounts, equipment accounts, and any project-specific accounts.
Step 8: Produce Monthly Financial Statements
Every construction company should produce and review three financial statements monthly: the Profit & Loss Statement (showing overall profitability), the Balance Sheet (showing assets, liabilities, and equity), and the Cash Flow Statement (showing where cash came from and went). Pair these with your job cost reports for a complete financial picture.
When to Hire a Construction Bookkeeping Professional
DIY bookkeeping works when you’re just starting out, but most construction business owners reach a point where professional bookkeeping saves more money than it costs. Consider hiring a specialist when:
- You have 3 or more active jobs at once
- You have employees (payroll is complex in California)
- You work on any public works projects (certified payroll required)
- You’re applying for bonds or financing (lenders require clean WIP schedules)
- Tax season takes more than a few days to prepare
- You’re not sure which jobs are actually making money
Frequently Asked Questions
What’s the best accounting software for a construction company?
QuickBooks is the most widely used. QuickBooks for Contractors (Desktop) offers the most construction-specific features. QuickBooks Online Plus/Advanced with Projects is the best cloud option. Sage 100 Contractor and Foundation are enterprise-level options for larger companies.
What is the difference between job costing and project accounting?
Job costing tracks costs and revenue at the individual project level. Project accounting is a broader term that includes job costing plus scheduling, billing management, change order tracking, and WIP reporting. In practice, they’re often used interchangeably for construction companies.
How often should a construction company reconcile its books?
Monthly at minimum. Larger companies should do weekly bank reconciliations to maintain accurate cash flow visibility across multiple active projects.
Do I need a CPA or a bookkeeper for my construction business?
Most construction companies need both — a bookkeeper for day-to-day transaction recording and reconciliation, and a CPA or tax professional for annual tax returns and complex planning. Bookkeeping Champs provides both services in one package for Southern California contractors.
How long should I keep construction financial records?
IRS guidelines require a minimum of 3–7 years for most records. California FTB extends this to 4 years from filing. For construction, retain project files, contracts, and job cost records for the life of the project plus 10 years, as construction defect claims can be filed years after completion.
Let Us Handle Your Construction Bookkeeping
Now you know how to do bookkeeping for a construction company — but knowing and doing are different things. Bookkeeping Champs handles all of this for contractors in Los Angeles, San Fernando Valley, and Ventura County so you can focus on building.
📞 Call (818) 679-4451 for a free consultation. We’ll take construction bookkeeping completely off your plate.