Phase accounting is a subset of cost accounting. Phase accounting is customarily used in project based organizations such as engineering, construction or development. Phase accounting incorporates many different types of cost inputs to generate informative reports to readers so that they may make good decisions to better the company financial position.
The key to the software is to properly set up QuickBooks to meet your needs. You lay out a chart of accounting accounts, buckets to dump data into, then identify your classes of work, create the nine phases of costs (QuickBooks uses item numbers) and finally identify the projects.
In construction there is little respect for processing paperwork. Contractors want to build projects, not deal with how paper is managed. But to gain a true understanding of what it costs to build a project and implement cost accounting, the contractor has to process documents in a meaningful way.
This is the second article in a series of articles walking the small business contractor step by step in implementing cost accounting in construction. This article focuses on designing and developing a document flow system for use in cost accounting. The next step after creating a document flow system is learning how to sort and process the documents that come into the office.
Taking a small construction company to the next level of financial success requires implementation of cost accounting. This article is one in a series designed to illustrate how you implement cost accounting in a small construction business. The first step in this process is design a file structure.
In construction accounting, the percentage of completion method is the preferred tool to account for revenues and direct costs of construction. If you are an owner of a contracting business, this is the best method of accounting.
As a construction company owner, you need a profit and loss statement that conveys information in a format that will identify how much you are truly making as a profit. The best format is a construction profit and loss statement identifying contract revenues, direct costs, indirect costs and the overhead expenses. This format most closely matches the estimating style of most small construction companies.
At the end of the day, it is about the profit you make with your company. This format will point out where the problem is located and where the best performance occurs. When I look at a P&L, I want to quickly identify issues and concerns and get them addressed. If you use this format along with the project accounting reports I illustrate in other articles, not only will you quickly discover any problems, but you can actually pin point the underlying issues and get them resolved. This will add thousands of dollars to your bottom line. So as you read this article, remember you are trying to improve that bottom line, this format is absolutely the best tool to achieve that goal.
A construction draw schedule is a financial tool used by contractors in identifying percentage of completion points in the project for the bank to advance proceeds to the contractor. The construction draw schedule is instrumental in keeping the project moving along.
The most effective form of a financial feedback loop in residential construction is phase accounting. Phase accounting is a subset of cost accounting and generates accurate information in the world of new home and residential additions for small contractors building up to 20 houses per year.
By using a concept of feedback and making changes to the business operation, a model of excellence can be achieved. This model allows the contractor to not get nickeled and dimed to the point of going out of business.
Cost accounting is an effective internal accounting process to evaluate company performance at the product/project level.
