What is Construction Accounting Software?

Written by: Kelsey Hainley and John Meibers

There are two major types of construction management software: Construction Project Management and Construction Cost Accounting Software.

Construction project management software helps to manage a project from start to finish, while construction cost accounting software tracks costs incurred during an ongoing construction job. Both systems integrate with other applications, such as ERP or CRM.

Construction accounting software offers contractors financial management tools to manage their construction business financials. This includes job costing, payroll, accounts payable and accounts receivable (AP/AR), general ledger, cash management, financial management, financial reporting and audit reporting.

While construction accounting software may be offered as a standalone product, better solutions, like Deltek ComputerEase, will provide capabilities and integrations with construction timesheets or construction project management software.

With the construction industry being one of the most competitive industries, the competition is high to both be successful and support firms with the best financial solution. There are hundreds of different accounting software solutions, each claiming to offer the best solution for contractors. Many claim to provide the "best" accounting product, but how do you know what works? How do you choose the perfect construction accounting software?

This construction accounting software guide will review the aspects of leading construction accounting software solutions and what features are critical to your construction company's growth and financial health. We'll show you why some are better than others and help you find the best fit for your needs.

Construction Accounting Software

In This Article

Construction Accounting Software vs. General Accounting Software

Key Elements of Construction Accounting Software

Benefits of Using Construction Accounting Software

Types of Construction Accounting Software

Best Construction Accounting Software

Both accounting systems may do the same thing, so why select one over the other? The answer is simple: it depends on what your needs are for your construction company.

A standard accounting software or bookkeeping solution is an application designed for small businesses to keep track of their finances. Furthermore, a general ledger system for tracking finances is an application designed to help companies manage their daily cash flow. Like Quickbooks Online, most general ledger systems offer basic functions for managing monthly income and expenses. Most general bookkeeping programs allow you to create an account for each customer, vendor, employee, etc. and then enter transactions into these individual records.

In contrast, construction-specific accounting software is specialized software that includes these same features but adds more key features tailored to the needs of construction businesses.

Construction-specific modules within financial software include project accounting, job costing, work in progress reporting and specialized progress billing.

Suppose you are looking for a purpose-built solution to create invoices, estimate projects, run jobs and perform other functions related to your construction business. In that case, you should look at a construction accounting system built for your industry.

A construction accounting system will allow you to enter data directly into the program, so you don't have to enter information manually. It will also help you keep track of your finances, allowing you to see your labor, equipment, payroll and material costs.

These solutions have many deployment options, including desktop software, cloud-based applications and mobile apps. However, you should consider using an industry-specific accounting system if you have multiple employees and multiple jobs and need to track all the associated time and expenses.

Construction accounting involves intricate processes to manage finances within the dynamic environment of the construction industry. Within this domain, certain key elements play a pivotal role in ensuring financial accuracy and project profitability, leading to a successful construction business.

Job Costing

One of these critical elements is job costing, which involves the meticulous breakdown of costs associated with specific construction projects. This includes direct costs such as materials, labor and subcontractor expenses, as well as indirect costs encompassing overhead and administrative expenditures.

Accurate job costing is indispensable for assessing profitability, making informed financial decisions and producing accurate financial reports. For instance, a construction business can better understand its financial health and make adjustments by carefully analyzing the costs incurred for a particular project.

Moreover, employing effective job costing methodologies is crucial for providing transparency to clients and stakeholders regarding the financial aspects of each undertaking.

Revenue Recognition

Revenue recognition is another vital aspect of construction accounting. It guides the appropriate recognition of income associated with completed projects. Aligning revenue with expenses is essential for maintaining financial integrity and evaluating contract profitability.

Budgeting and Forecasting

Budgeting and forecasting are also critical components in construction accounting. Establishing realistic budgets for different project phases is paramount, as well as aligning financial plans with project timelines and milestones. Adaptive budgeting based on changing project conditions ensures financial plans remain resilient. Construction businesses can use construction accounting software to enhance financial control and project outcomes through effective budgeting and forecasting practices.

There are several reasons why construction firms and project managers use purpose-built accounting software for the construction industry:

Improved Operational Efficiency

Construction firms that don't use the right software often need help managing their projects effectively. The wrong software can lead to poor planning, missed deadlines, high-cost overruns and other problems. In fact, according to the American Institute of Certified Public Accountants, construction firms that use inefficient software lose billions annually due to poor management practices alone.

Better Information Management

Construction firms often need help managing the enormous amount of information required to run a successful operation. They must deal with multiple types of contractors, suppliers, subcontractors, banks and customers—all while keeping tabs on budgets and schedules. The complexity of the business can often lead to inaccurate invoicing, missed deadlines and poor cash flow.

Better Project Management

Construction software is essential to every construction manager because it allows them to manage projects effectively. It helps contractors monitor and analyze cost performance, improve profit margins and reduce risk. Construction accounting software provides real-time visibility into key metrics such as labor hours, material usage and contract pricing. These tools help managers decide how much to bid and what type of contracts to pursue. They allow them to forecast budgets and plan accordingly. They also enable them to identify potential problems early enough to prevent costly mistakes.

Improved Communication

In addition, construction accounting software improves communication among team members by providing access to information across departments. Managers can easily see where resources are deployed, whether equipment needs maintenance and what tasks are left undone. This level of transparency leads to greater client communications and collaboration and faster decision-making, resulting in higher profits.

Better Reporting

Finally, construction accounting software streamlines the process of generating reports. Instead of switching between spreadsheets or databases, managers can generate reports from within their programs, such as financial statements, job cost reports, work in progress reports and more.

By deploying construction accounting software, you will be able to achieve:

1. Effective construction project management
2. Better cash flow
3. More accurate job costing and forecasting
4. Faster decision making
5. Higher profitability
6. Increased efficiency
7. Lower costs
8. Reduced risk
9. Real-time visibility
10. Streamlined reporting
11. Better customer service
12. Better teamwork
13. Faster and more accurate Accounts Receivable and Accounts Payable
14. Faster bank reconciliation
15. Better budget management

There are many different types of construction software out there. Some focus on one specific area of construction management (such as estimating), while others cover all aspects of the industry. The most popular types of construction accounting software include:

Job Cost Accounting Software

Construction accounting differs from general accounting, so you need software that can provide detailed job costing reports. Job cost accounting software is a specialized tool crafted to automate and streamline the financial aspects of construction projects following the contract method. Tailored for the construction industry, this software enables businesses to track and manage costs associated with individual projects efficiently. It facilitates the detailed recording of actual costs, encompassing labor, materials, equipment, subcontractors and overhead. By providing a granular level of insight into project finances and direct and indirect costs, it enhances accuracy in estimating, bidding and project management. This software allows for real-time monitoring of project budgets, cost-to-complete analyses and variance reporting, contributing valuable data for a detailed report on project financials. Furthermore, it often integrates seamlessly with broader accounting systems, ensuring coordination between project-level financials and the organization's balance sheet.

Job costing in construction and general accounting differ in their scope and focus. In contrast, general accounting encompasses a broader range of financial activities for the entire organization, involving tasks like financial statements, budgeting and tax compliance. It focuses on overall financial health rather than project-specific details, using principles like accrual accounting to recognize revenues and expenses as they are earned or incurred. The key distinction lies in the level of granularity and the timing of cost recognition, with job costing providing project-specific insights and detailed reports, while general accounting offers a more holistic view of organizational finances.

Revenue Recognition Software

Construction accounting is complex because it deals with the timing of recognizing revenue. In short, revenue recognition refers to recording revenue earned during a period. Revenue is recorded on either a cash or an accrual basis. Under a cash basis, revenue is recognized immediately upon receipt. Under an accrual basis, revenue recognition occurs over the life of the related contracts.

Cash-based accounting is common among smaller contractors because it simplifies financial reporting and makes it easier for small businesses to manage their finances. However, it does not allow for complete transparency into revenues. For example, a contractor could report $1 million in gross sales without realizing that $500,000 is still outstanding. Companies that use cash-based accounting are less likely to realize the full potential of their operations.

Accrual-based accounting allows companies to record revenue accurately and fairly. It also requires companies to carefully monitor the performance of their projects and bill customers accordingly. This helps ensure that contractors do not pay themselves prematurely.

Construction Billing Software

The construction industry uses a wide range of billing methods to invoice clients. These vary depending on whether the contractor bills hourly or lump sum. They also vary by how much work gets included in each invoice and whether the project has multiple phases or stages.

Time and materials projects typically bill hourly, allowing contractors to charge for the actual hours worked on a job. This method is often preferred because it provides greater transparency into a project's cost. However, it requires careful tracking of tasks performed and hours spent on the job, making it difficult to estimate project costs accurately without additional information.

AIA progress billing is based on the percentage of work completed and invoices provide detailed breakdowns of the types of work completed and billed. This method is effective for estimating costs but requires the contractor to keep meticulous records of the amount of work completed and the total number of hours spent on the job.

Retainage is not billed the same way as other client billing and requires special treatment. Clients may withhold part of the initial contract payment until they are confident that the project will be completed within budget. This withholding could occur at any stage during the project, including before beginning work. Once the project is complete, the withheld portion becomes due immediately.

Construction Payroll Software

Construction Payroll Software helps small businesses manage their human resources by automating the process of paying employees and complying with union policies, tax withholdings and wage reporting requirements.

Managing construction payroll can be challenging for companies with a part-time HR department. This complexity is especially true when considering the many factors involved in determining a fair pay rate. There are multiple considerations to take into account, including prevailing wages, unionization and state and local taxes. These challenges make it essential to have accounting systems to help accurately calculate payroll, keep accurate records and ensure compliance with regulatory rules.

Estimating Software

A construction firm's ability to estimate work correctly is critical for success.

Estimating the costs of a construction project is an integral part of construction management. After meeting with your client, the construction estimating phase is usually the next step in determining the project's feasibility, the actual construction budget and the completion schedule.

Construction cost estimating and scheduling covers all elements of project costs, including equipment, escalation and adjustments, administrative fees, labor costs, materials, profits, preconstruction takeoff, sub-contractor, overhead costs and any other additional costs.

Several types of construction accounting software programs are available today for construction workers. Some offer only basic features, while others include advanced functionality such as multi-currency support, time management tools, etc. The best construction accounting software should meet your company's specific needs and allow you to track all aspects of your business efficiently.

Deltek ComputerEase is a cloud-based solution that helps construction firms manage every aspect of their operations. The software includes flexible job cost accounting and computerized construction management software to power job success. Additionally, it provides a robust CRM module that integrates seamlessly with its accounting system.

Built specifically for contractors and construction professionals, Deltek ComputerEase centralizes all critical data into one place to help you manage costs, job site productivity and project profitability.

Industry-leading construction software features include:

• Job Cost Accounting: Track labor hours, material expenses, subcontractors, equipment and more.
• Construction Management: Manage projects from bid through closeout. Create work schedules, track progress, generate reports and analyze performance.
• Dashboard: View real-time information, including budgets, forecasts and invoices.
• Customizable Reports: Generate customized spreadsheets and charts to meet specific needs.
• Multi-Currency Support: Easily switch between U.S., Canadian and Mexican currencies.
• Time Tracking: Automatically record billable time spent on each task or client.
• Billing & Payment: Electronic funds transfer (EFT) technology allows for quick and efficient payment processing.
• Invoice Approval: Accept or reject an invoice within seconds.
• Project Management: Plan, schedule and monitor projects from start to finish.
• Mobile App: Access your data anytime, anywhere.

As construction accounting continues to evolve, embracing emerging technologies and industry trends, businesses are urged to prioritize sound financial management practices. The integration of technology is anticipated to streamline processes further and enhance the accuracy of financial data.

In essence, construction accounting is not merely a financial obligation but a strategic tool that, when wielded effectively, can contribute significantly to the success and sustainability of construction projects. By understanding and implementing these key elements, construction businesses can navigate the complexities of the industry with financial acumen, fostering growth and resilience in an ever-changing landscape.