Construction companies have many unique challenges like weather, available of workers, unions, legal, government and accounting and more. At GAP we have helped many construction or building trades companies in various disciplines including marketing, technology, management and accounting to name a few.
Marketing and management has unique challenges and serious questions need to be answered, the most comforting being RESULTS on earlier projects.
Accounting for Construction can be tricky, e.g., how do you know what method of accounting you should use? The IRS helps by suggesting a three-step method to choose your construction accounting method.
1. Length. Are your projects started and finished in the same year? Yes, it’s short-term and use either the cash or accrual method of accounting.
2. Sort out your long-term contracts as general construction, or home construction -- buildings with no more than four dwelling units. For home construction projects you may use the Completed Contract method of accounting.
3. Classify your company size. If your average annual gross receipts for the previous three years were under $10 million, you are a small contractor. Large contractors must use the percentage of completion method of accounting for long-term general contracts (you may use the completed contract method for home construction projects). Small contractors can use cash or accrual methods, unless the project takes at least 2 years at which the Percentage of Completion or Completed Contract method must be used.
Percentage of Completion Method. You recognize income based on progress in the project. Costs and expenses are costed using regular accrual accounting.
Completed Contract Method. You recognize income or expenses when the long-term project is complete.