accounting reports for contractors | Levelset

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The construction industry has one of the highest rates of failure of any industry. In part, that is because cash flow in construction can be so difficult to maintain. Getting paid in construction can take a long time, and if you aren’t properly managing where your money comes from and goes – and how long it takes to move – you won’t survive. It’s important that you review critical reports on a regular basis to identify where the financial health of your business needs support. These are 5 of the most important construction accounting reports you need to know about and why you need to look at them.

If you are new to construction accounting, you will soon discover that it is a bit different from general business accounting. We have specialized terms and reports that other industries don’t have, although much of the reporting is similar. It can be a bit confusing if you don’t know what you are looking at or why.

1. Accounts Payable Aging Report (AP Aging)

Purpose

The purpose of this report is to show how much money you owe, and to whom, and how long it’s been since the costs were incurred.

Importance

An AP aging report is important because it allows you to keep track of when invoices are due to be paid and helps you discover which payments you’ve missed. You will want to run this report often, especially before writing checks, so you know what is due. Many software packages will create this report for you, and you can choose to break it down by the individual invoice so you can see the details for each vendor.

Format

An AP Aging report usually has five columns:

  1. Vendor name
  2. Current amount due (0-30 days since the invoice date)
  3. Amount due aged 31-60 days
  4. Amount due aged 61-90 days
  5. Amount due past 90 days
  6. Total amount due

Each row will have the total of the invoices that are due for that time period for that vendor. For example, if an invoice was dated December 15th, and today is December 30th, it would show up in the current column since it isn’t 30 days old yet. Another invoice dated October 15th would show up in the 61-90 days column. Note that the aging is based on the invoice date, not when the work was done or when the invoice was received.

2. Accounts Receivable Aging Report (AR Aging)

Purpose

This report shows how much you are owed, by whom, and how long it’s been since you invoiced them.

Importance

This report shows you who owes you money and how long it’s been since you billed them. The Accounts Receivable Aging Report is perhaps the most critical accounting report for construction businesses. Your business won’t survive if you don’t collect the money you earn!

You need this information so you know when to:

When a payment is late, you have a specific amount of time to send notice documents that will protect your right to file a lien later on. These requirements differ by state, so make sure you understand the requirements of the state where your project is located.

You’ll want to look at the AR Aging report at least once a month so you know where your receivables are and who you need to contact about payment. Most accounting software applications can create this report for you, with a detailed breakdown by invoice if that is what you want to see.

Format

There are usually six columns in an AR Aging report:

  • Customer name
  • Current amount due (0-30 days since the invoice date)
  • Amount due aged 31-60 days
  • Amount due aged 61-90 days
  • Amount due 91-120 days
  • Amount due aged more than 120 days
  • Total amount due.

Each column will have the total of the invoices that are due for that time period. For example, if an invoice was dated November 15th, and today is December 30th, it would show up in the 31-60 days column. An invoice from August 15th would show up in the “more than 120 days” column.

3. Job Costing Report

Purpose

A job costing report is used to compare estimated costs on a project to the actual costs. If you break down your projects into phases or codes, you can compare costs at the phase or code level, as well as at the job level.

Importance

Job costing reports allow you to see how accurate your original estimate was for a specific project. The more you break down your jobs into phases or codes, the more detail you can see. This allows you to learn from your mistakes and adjust on future estimates.

Format

These reports will look different coming from different software packages, but the basic columns are:

  • Job name (or phase/code)
  • Estimated costs
  • Actual costs
  • The difference

The amount actually spent on each job is subtracted from what was estimated, and the difference is shown as a positive or negative number. If the number is positive, there is still money left in the budget. If it is negative, then more money was spent than was estimated.

4. Profit and Loss (P & L or Income Statement)

Purpose

The Profit and Loss report compares the amount of income you are taking in with the expenses for a certain time period. Usually, the P&L report is run monthly with year to date totals, and then again at the end of the year.

Importance

This accounting report for contractors shows you if your company is making any money overall for the time period. You can run this report for a certain time period, year to date, or for all time. Seeing totals of your income and expense transactions over time will help you spot trends and see where costs are too high or too low. If you are consistently not making money, you will have to find ways to cut expenses or raise your prices. This report will help you know when to make a change.

Format

The report is comprised of the total of your income and expense accounts for the time period the report covers. Your income accounts will include construction sales, miscellaneous income, and any other income streams you have. The expense accounts will include your cost of goods sold, overhead expenses, payroll, taxes, and other costs of doing business. The total at the bottom of the report will be your net profit for the period.

5. Work in Progress Report (WIP Report)

Purpose

This important construction accounting report is used when you want to recognize your income as a percentage of project completion. It compares actual costs to estimated costs and actual income to estimated income for each project, then compares the percentages to see if they are the same. If they are not equal, your total income is adjusted to make them equal.

Importance

In most cases, the goal is to ensure you are billing for the amount of work you have completed. Both overbilling and underbilling can create financial issues down the road. Using a WIP report lets you know how much your billings vs costs are and will help you spot trends of over or under billing.

The income adjustment at the bottom of the report will also help you more accurately reflect your actual income. Banks, lenders, and potential clients may use this report to gauge how much work you have on hand and compare it to your other financial statements for a more accurate picture of your financial standing.

Format

A WIP report can be confusing, depending on how much information your software provides.

Here are the basic columns:

  • Job name
  • Estimated costs
  • Actual costs
  • Percent complete (based on costs)
  • Estimated revenue
  • Earned revenue (percent complete times estimated revenue)
  • Actual revenue (what has actually been billed)
  • Difference

If the actual revenue is more than the earned revenue (you billed more than your costs), then that project is overbilled and your income will be reduced by that amount. If the actual revenue is less than the earned revenue, then that project is underbilled and your income will be increased by that amount.

Construction accounting reports help you keep more cash

As the saying goes, “you can’t manage what you don’t measure.” These important construction accounting reports help contractors identify potential financial problems that could derail their business. Most bookkeeping or accounting software, like Quickbooks for Contractors or Jonas Enterprise, can generate these reports for you automatically.

These financial reports can help you get a handle on your business, spot trends, and improve profitability. Review these reports on a regular basis.