INSIGHT

Construction accounting: Transforming project outcomes 

Angela Thomas, Mark Leverette • June 23, 2025

Services: Sage Intacct Industries: Construction

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Construction companies face unique financial management challenges that require specialized accounting approaches. Unlike standard accounting practices, construction accounting must address project-based operations, decentralized production, fluctuating costs, and complex revenue recognition methods.  

At BPM, we understand these industry-specific needs and can help you implement effective accounting systems to keep your projects profitable and your business thriving. 

What makes construction accounting different? 

Construction accounting differs significantly from standard accounting practices in several important ways: 

• Project-based operations: Each construction project functions as its own temporary profit center, requiring detailed tracking and allocation of costs and revenue for every job, or job phase. 
• Decentralized production: With work occurring across multiple job sites rather than in fixed locations, accounting must track mobile workforces and equipment. 
• Long-term contracts: Projects often span multiple accounting periods, requiring specialized billing and revenue recognition methods. 
• Fluctuating costs: Material and labor costs can change significantly during a project’s lifetime, making cost management challenging. 
• Change orders: Projects frequently evolve through change orders, which must be properly documented and priced to maintain profitability. 

Understanding these differences is key to maintaining accurate financial records and making informed business decisions. 

Essential construction accounting concepts 

Job costing 

At the heart of construction accounting is job costing—the process of tracking all expenses associated with each project. Accurate job costing helps you estimate future projects, monitor ongoing work, and analyze completed jobs for profitability. 

Key components of job costing include: 

• Labor costs (including wages, benefits, and taxes) 
• Material costs (including delivery and storage) 
• Equipment costs (purchases, rentals, maintenance)
• Subcontractor expenses 
• Overhead allocation 
• Change orders 

Modern construction ERP software can streamline this process, allowing you to track costs in real-time and take corrective action when projects exceed budgeted amounts. 

Revenue recognition methods 

Construction companies typically use one of several methods to recognize revenue: 

• Cash basis method: Revenue is recorded when payment is received, and expenses are recorded when paid. While simple, this method is generally only suitable for smaller contractors with average gross receipts under $25 million. 
• Percentage of completion method (PCM): Revenue is recognized based on the percentage of work completed during each accounting period. This method provides a more accurate view of a company’s financial position for long-term projects and is required for larger contractors working on projects lasting more than two years. 
• Completed contract method (CCM): All revenue and expenses are recognized only when the project is finished. While this can defer tax liability, it’s generally limited to home construction projects and isn’t GAAP-compliant. 

Contract retainage 

Retainage is the portion of the contract price (typically 5-10%) withheld until project completion to promote satisfactory work. Since this can represent a significant portion of your profit, tracking retainage properly is crucial for cash flow management and financial planning. 

3 financial statements specific to construction 

Construction companies rely on specialized financial reports that address industry-specific needs: 

Work-in-progress (WIP) schedule 

The WIP schedule provides a snapshot of all ongoing projects, showing: 

• Contract amounts 
• Costs incurred to date
• Estimated costs to complete 
• Billings to date 
• Estimated gross profit 

This crucial document helps identify potential cost overruns early and serves as an early warning system for project profitability issues. 

Job cost reports 

These detailed reports track actual costs against estimated costs for each project, breaking down expenses by category (labor, materials, subcontractors, etc.). Regular review of these reports helps catch budget variances before they become serious problems. 

Construction-in-progress (CIP) report 

The CIP report tracks the financial status of uncompleted projects, including costs incurred and recognized revenue based on your chosen revenue recognition method. 

Construction accounting best practices 

To maximize the effectiveness of your construction accounting system: 

1. Focus on accurate job costing: Make job costing a priority across your organization, with clear coding systems for each job and cost category. 

2. Choose the right revenue recognition method: Select the method that best fits your business size and project types, considering both financial reporting and tax implications. 

3. Implement proper change order management: Document, price, and approve all change orders before beginning work to maintain project profitability. 

4. Review contracts carefully: Avoid accepting unreasonable contract terms that could lead to disputes or financial losses. 

5. Invest in construction-specific accounting software: Choose a solution that is trusted by the AICPA and CFMA, and is designed for the unique needs of construction businesses. 

Choosing the right construction ERP software 

Selecting the right construction ERP software is essential for managing these specialized accounting needs. When evaluating solutions, look for: 

Project management capabilities 

Your construction ERP should offer robust tools for: 

• Real-time data and analytics 
• Work-in-progress reporting 
• Resource allocation 
• Inventory management 
• Progress tracking 
• Task scheduling 

These features help you keep projects on budget and on schedule. 

Accounting and financial management tools 

Construction accounting comes with unique complexities—staggered payment schedules, multiple funding sources, and project-specific budgets, to name a few. That’s why your ERP system should deliver real-time visibility across all entities, helping you track budgets, flag risks early, and stay in control. 

To truly support growth, your system also needs to scale with you—leveraging modern, human-centric technologies like agentic AI to automate both routine tasks and advanced analytics. 

Mobile accessibility 

With workers in the field and on the move, mobile access to project data is essential. Look for solutions that allow team members to access information and collaborate from anywhere, at any time. 

Why Sage Intacct excels for construction accounting 

Among the many construction ERP options available, Sage Intacct for Construction stands out as a particularly strong solution. With over twenty years of industry experience and the largest market share of construction ERP systems, Sage Intacct is the preferred accounting solution of the AICPA and Sage has as a trusted partnership with the Construction Financial Management Association (CFMA). Sage Intacct offers several advantages: 

• Cloud-native approach: Access your financial information anytime, anywhere, without complex upgrades or maintenance. 
• Powerful integrations: Seamlessly connect with over 200 applications commonly used in construction, including Procore and Autodesk Navisworks. Sage also has a full construction suite of their own integrated solutions for extended capabilities to manage field services, estimating, construction management, construction payroll, real estate development, and AP automation.  
• Scalability: As your business grows by adding regional offices or new divisions, Sage Intacct grows with you, offering centralized management of multiple entities. 
• Robust project management: From document management to change order tracking, Sage Intacct provides the tools you need to manage complex projects effectively. 
• Automated project billing: Improve cash flow with automated invoicing based on project milestones or specific billing terms. 

Partner with BPM for your construction accounting needs 

With 20 years of experience working with contractors, subcontractors, developers, and builders, BPM’s Construction team understands the unique challenges your business faces. Our professionals can help you implement effective accounting systems, optimize your processes, and make informed financial decisions. 

We’re committed to delivering customized solutions focused on your specific business requirements, whether you need help with advisory services, tax planning, accounting systems, or assurance needs. 

Ready to take your construction accounting to the next level? Contact BPM today to discuss how we can help streamline your financial management and position your business for scalable growth.