Bookkeeping for Contractors

Bryce Wisan, CPA, CCIFP
January 10, 2026

Construction isn't like other businesses. Your bookkeeping shouldn't be either.

If you're a contractor running your financials the same way a retail store or consulting firm does, you're likely leaving money on the table—and exposing yourself to risks you don't even know exist. Construction accounting operates under its own set of rules, and the difference between a bookkeeper who understands them and one who doesn't can mean the difference between a thriving business and a cash flow crisis.

Here's what every contractor needs to know about keeping their books right.

Why Construction Bookkeeping Is Different

Standard bookkeeping follows a simple premise: money comes in, money goes out, track it all. Construction throws that model out the window.

Your revenue recognition is tied to project completion, not invoices sent. Your costs span months or years across multiple jobs. You're managing retainage, progress billing, change orders, and equipment depreciation—often simultaneously across dozens of active projects.

A generalist bookkeeper trained on QuickBooks for a service business will approach your books the same way. The result? Financial statements that don't reflect reality, job costs you can't trust, and an inability to answer the most basic question in construction: Am I making money on this job?

Job Costing: The Foundation of Construction Financials

Job costing is the practice of tracking all revenue and expenses by individual project. It sounds straightforward. It isn't.

Every dollar of labor, material, equipment, and overhead needs to land in the right job bucket. When your crew splits time between three projects in a week, those labor hours need allocation. When you buy materials that sit in your yard before deployment, you need a system to assign them correctly when they're used.

What proper job costing tells you:

A bookkeeper unfamiliar with construction will often dump expenses into general categories. You'll see total material costs for the month, but you won't know if that big commercial job is bleeding money while your residential work carries the company.

Work in Progress (WIP) Reporting

WIP schedules are arguably the most important financial tool in construction—and the one generalist bookkeepers are least likely to understand.

A WIP report compares your estimated costs to complete each job against your actual costs incurred and billings to date. It reveals whether you're overbilled or underbilled on each project, and it's the only way to see your true financial position.

Why this matters: Imagine you've billed $800,000 on a million-dollar job and spent $700,000. Looks like you're in great shape—$100,000 in the bank. But if your revised estimate shows $400,000 still needed to complete, you're actually $100,000 in the hole. You just don't know it yet.

WIP reporting catches this. Cash-basis bookkeeping doesn't.

Banks, bonding companies, and sophisticated buyers of construction businesses all want to see WIP schedules. If your bookkeeper can't produce them—or produces them incorrectly—you're limited in your ability to grow, get bonded for larger projects, or eventually sell your business at full value.

Retainage Management

Retainage is the percentage of each payment withheld until project completion or some milestone is reached—typically 5-10% of each progress billing.

This creates a unique challenge: you've earned the revenue, but you won't see the cash for months. Meanwhile, you're paying your subs, buying materials, and covering payroll in full.

Proper retainage tracking requires:

Generalist bookkeepers often record the net payment received and move on. Your balance sheet understates your assets, your cash flow projections are wrong, and you may forget to collect what you're owed when the time comes.

Progress Billing and AIA Documentation

Most commercial contractors bill using AIA (American Institute of Architects) standard forms—G702 and G703 specifically. These documents require detailed schedule of values, completion percentages by line item, and tracking of previous billings, current applications, and stored materials.

Your bookkeeper needs to understand how these forms work, how to reconcile them against your job cost reports, and how to ensure what you're billing matches what you're recognizing as revenue.

Misalignment here creates problems with auditors, bonding companies, and project owners who will absolutely scrutinize discrepancies.

Certified Payroll and Prevailing Wage

Government contracts come with certified payroll requirements. You're required to pay prevailing wages and submit detailed documentation proving you did so.

Getting this wrong isn't just an accounting error—it's a compliance violation that can get you barred from public work and potentially trigger Department of Labor investigations.

A construction-savvy bookkeeper knows to:

Equipment and Asset Management

Construction businesses are capital-intensive. You likely own trucks, trailers, excavators, lifts, tools, and other equipment worth hundreds of thousands or millions of dollars.

Proper accounting means:

Many contractors have no idea what their equipment actually costs them per hour or per job. That's a job costing gap that distorts your profitability analysis.

Cash Flow Management in a Cyclical Business

Construction cash flow is notoriously difficult. You're often cash-negative in the early phases of projects (mobilization, materials purchasing) before billing catches up. Seasonality hits certain trades hard. Slow-paying customers and retainage compound the challenge.

Your bookkeeper should help you:

This requires understanding how construction money flows—not just recording what happened.

The Real Cost of a Generalist Bookkeeper

Hiring a generalist bookkeeper for construction is like hiring a residential electrician for industrial work. They might understand the fundamentals, but the specialized knowledge gap will hurt you.

Common problems when generalists handle construction books:

The bookkeeper might cost less per hour. But the decisions you make based on bad data—underbidding jobs, taking on unprofitable work, missing cash crunches—cost far more.

What to Look for in a Construction Bookkeeper

When evaluating bookkeeping support for your contracting business, look for:

Direct construction experience. Have they worked with contractors before? Do they understand your specific trade?

Familiarity with your software. Construction-specific platforms like Sage, Viewpoint, Foundation, or Procore have a learning curve. Experience matters.

WIP and job costing competency. Can they explain how these work? Have they produced them for other clients?

Understanding of your billing methods. Progress billing, AIA forms, T&M tracking—they should know what applies to your work.

Knowledge of prevailing wage requirements. If you do any government work, this is non-negotiable.

Building a Financial Foundation That Supports Growth

Good construction bookkeeping isn't about satisfying your accountant at tax time. It's about having the information you need to run your business.

When your books are right, you can:

When your books are wrong—or when they're structured for a business model that isn't yours—you're flying blind.

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