Construction accounting methods

Construction contractors must determine whether to use a cash or accrual accounting method, depending on the type of contracts they have and their average annual gross receipts.

The accrual method is often recommended because it provides more insight into a contractor's financial status, notes certified public accountant Leslie Guajardo in an article for ENR Texas & Louisiana. In order to have the necessary information to manage accounting on an accrual basis, it is important to have a good record of accounts receivable and accounts payable. Guajardo notes that contractors who use a computer program won't have much extra work to do if they choose the accrual method. Computer programs are also helpful in minimizing accounting errors. For example, duplicate payment audit software can help contractors reduce the chances of lost revenue.

Contractors can ensure they are using the correct accounting method if they reassess their status at the end of each year to make sure the method they are using matches their financial status and enables them to comply with tax laws.

When implementing the accrual method, income is only recorded when it is truly earned, and expenses are noted when they are incurred.  

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