Accounting for Construction Businesses

Why Construction Accounting is Different

Construction businesses deal with long project timelines, progress billing, retention holdbacks, subcontractor management, and fluctuating material costs. Standard accounting practices often fall short. Construction accounting requires project-based tracking and an understanding of revenue recognition over time.

Progress Billing

Most construction projects bill in stages as work is completed. Each progress claim should reflect the percentage of work completed, less any amounts previously billed and retention holdbacks. Accurate progress billing requires regular site assessments and clear documentation.

Retention Accounting

Retention is typically 5-10% of each progress claim, held back by the principal until practical completion and the end of the defects liability period. Track retention receivable as a separate asset. Release it to revenue only when the conditions for its release have been satisfied.

Subcontractor Management

Construction businesses often rely heavily on subcontractors. Each subcontractor relationship creates accounts payable obligations, potential retention payable, and compliance requirements (such as verifying ABN and insurance). Track subcontractor costs against each project for accurate job costing.

Job Costing

Every project should have its own cost centre. Track materials, labour, subcontractors, equipment hire, and overheads against each job. Compare actual costs to the original estimate regularly. This lets you identify problem projects early and improve future estimating.

GST on Construction

Most construction services attract GST. However, be aware of the reverse charge provisions for taxable supplies of gold, valuable metals, and in some cases certain construction-related supplies. The margin scheme may apply to property development transactions.

Taxable Payments Annual Report (TPAR)

Businesses in the building and construction industry must lodge a Taxable Payments Annual Report with the ATO by 28 August each year. This report details payments made to contractors for building and construction services during the financial year.

How Kumry Helps

Project accounting, retentions, progress billing, subcontractor payments and TPAR each work differently and have their own rules. Before you rely on Kumry for any of them, check what that part of Kumry does, and keep your own records for anything it doesn’t cover.