Chart of Accounts for Construction Company: Simple Overview for Contractors

For owners of growing construction companies, managing the complexity of multiple projects presents a wide variety of challenges. Among those is maintaining an accurate read of your company’s financial performance. From tracking labor and material costs on each job to staying up to date on the value of your fixed assets, construction accounting can be complex.

To be successful, you have to be brilliant at the basics. One of the fundamental components of construction accounting is your company’s chart of accounts: an organized list of all the accounts in a company’s general ledger.

In this simple overview, we’ll explore exactly what a chart of accounts (or COA) is and why it’s so important to accurate construction accounting. We’ll also explain how we at James Moore structure COAs for our construction accounting clients and share our best practices for setting up and maintaining a chart of accounts for a construction company.

What is a Chart of Accounts?

A chart of accounts is simply a list of all the financial accounts in a company’s general ledger (GL). Each account has a designated purpose and all financial transactions related to that specific purpose should be recorded in the appropriate account.

A COA serves to keep all of the financial transactions in a business neatly categorized and organized. Every account is assigned a unique name and a number sometimes referred to as a GL code. Your COA serves as a foundational piece of your accounting infrastructure, organizing every transaction into a systematic framework for consistency and clarity in accounting records.

In the construction industry, a COA is particularly important since it allows contractors to track project-specific costs. For instance, each project your company works on will have its own set of accounts, helping you better understand the costs and revenues associated with distinct jobs.

How to Structure a Construction Company Chart of Accounts

An effective COA relies on having granular detail that enables an appropriate level of internal tracking. But when you’re first starting out, it’s important not to overcomplicate your COA. Having too many GL accounts tends to lead to confusion, not clarity.

Instead, focus on taking a standardized approach that has clear categorization. Each account should be assigned a unique code. These codes are often grouped by account type; for instance, all asset accounts are typically coded with a number between 1000 and 1999.

At James Moore, we typically structure construction charts of accounts as follows:

• 1000 – 1999: Assets
• 2000 – 2999: Liabilities
• 3000 – 3999: Equity
• 4000 – 4999: Revenue
• 5000 – 5999: Expenses

While different types of expenses are generally assigned into these buckets, going a layer deeper accounts for the different types of transactions within each of these categories. For instance, you may organize your asset accounts as follows:

• 1000–1099: Cash and cash equivalents (e.g., checking accounts, petty cash)
• 1100–1199: Accounts receivable
• 1200–1299: Inventory and supplies
• 1300–1399: Prepaid expenses

Construction companies that work on many jobs might even go a step further by adding a job code to their Chart of Accounts. For example, a company may have:

• 5010-1001 for materials for Job #1001
• 5010-1002 for materials for Job #1002

This approach enables companies to better manage their job costing and percentage of completion accounting by costs to specific accounts associated with each project the company is working on.

Setting Up and Managing Your Chart of Accounts

Before you jump into setting up your own numbered accounts following these rules, ask yourself a few questions to make sure you have the right structure in place. It’s important to carefully build a COA that reflects the needs of your business and isn’t overly cumbersome to manage.

Start by defining the needs of your business. How many projects do you work on simultaneously? How many categories do you need job costing for? Don’t just focus on the current state of your business today. Consider where you hope to be in a couple of years, and make sure the COA structure you choose is equipped to handle that too.

Once you have your COA mapped out, it’s time to build it into your accounting system. Popular accounting software platforms like Quickbooks make this easy with industry-specific templates. However, it’s crucial that you (and your team) understand how to set these up and manage them on an ongoing basis. Without this understanding, costs may go unallocated or be incorrectly categorized — creating a mess that can be extremely difficult to untangle come year-end.

At James Moore, our construction CPAs don’t just help companies set up a construction chart of accounts; they’ll also teach your team how to use them. We’ll help you build a COA that acts as a solid foundation for your business for years to come. It will streamline your accounting and bookkeeping and give you access to the financial insights you need to run your construction business more effectively.

James Moore: Outsourced Accounting Solutions for Construction Companies

Setting up your construction company’s chart of accounts is one of the first steps in taking a more sophisticated approach toward accounting and bookkeeping. When it comes to financial performance, knowledge is power. A robust COA ensures you have the information you need to more effectively manage your business.

Getting the setup of your COA right is key to success. All kinds of accounting information flows from this structure, from the data necessary to manage your WIP schedule to the insights you need on the profitability of every project your company works on.

Investing the time to build your COA right is a move that will pay dividends down the road. If you’re unsure where to start or need an experienced professional to guide you, the team at James Moore is here to help. Our outsourced construction accounting professionals specialize in working with growing construction companies. We’re familiar with the transition to accrual accounting, the process of securing bonding capacity, and the need for a cost-effective approach to construction accounting that builds your business on a firm foundation.

Contact an advisor today to learn more about how our construction accounting CPAs can help your business.

All content provided in this article is for informational purposes only. Matters discussed in this article are subject to change. For up-to-date information on this subject please contact a James Moore professional. James Moore will not be held responsible for any claim, loss, damage or inconvenience caused as a result of any information within these pages or any information accessed through this site.