Construction Accounting: How It Works, Jobs, Software & Methods Explained

Construction is one of the most complex industries when it comes to financial management. Unlike standard business accounting, construction accounting involves unique challenges such as job costing, progress billing, change order management, and revenue recognition. Whether you're a contractor, accountant, or construction firm owner, understanding construction accounting is essential for long-term profitability and compliance.

In this guide, we’ll break down how to do construction accounting, explore the best construction accounting software, look into job opportunities, and answer the critical question: What accounting method is used in construction?

What Is Construction Accounting?

Construction accounting is a specialized branch of financial management focused on tracking, reporting, and analyzing financial data related to construction projects. It differs from general accounting in several key ways:

1. Projects are temporary and vary in size and duration.

2. Labor, materials, and overhead must be tracked per job.

3. Revenue is often recognized over time (not just when payments are received).

4. Costs and billing may change frequently due to project scope changes.

In short, construction accounting is about managing money across multiple jobs while ensuring every cost is tracked accurately.

How to Do Construction Accounting: Key Steps

If you're wondering how to do construction accounting, here are the foundational steps to follow:

1. Set Up a Construction-Specific Chart of Accounts

Your chart of accounts should reflect:

1. Labor

2. Materials

3. Subcontractors

4. Equipment

5. Overhead

6. Job-specific costs

2. Use Job Costing

Assign every cost to a specific job and cost code. This allows you to see how profitable each project is in real time.

3. Track Labor and Payroll Accurately

Use time-tracking tools and make sure payroll is job-coded, especially if workers are on multiple projects.

4. Implement Progress Billing

Construction often uses AIA billing or progress billing based on milestones or percentages completed.

5. Manage Change Orders and Retainage

Always track and document any changes to project scope or payment schedules. Retainage (withheld funds until project completion) must also be recorded accurately.

Proper construction accounting helps avoid cash flow issues, unexpected losses, and tax problems.

What Accounting Method Is Used in Construction?

There are two primary methods of accounting used in construction:

1. Percentage of Completion Method (PCM)

1. Revenue is recognized as the project progresses.

2. Common for long-term projects.

3. Requires accurate forecasting and budgeting.

2. Completed Contract Method (CCM)

1. Revenue and expenses are recognized only when the project is completed.

2. Often used for short-term or small projects.

Which to Choose?

1. Projects lasting more than one year often require PCM under IRS rules.

2. CCM may be available for smaller contractors with annual revenues under $27 million (as of 2025 IRS updates).

Understanding what accounting method is used in construction is vital for IRS compliance and accurate financial planning.

Best Construction Accounting Software

Choosing the best construction accounting software depends on your company’s size, needs, and budget. Here are top-rated options:

1. QuickBooks for Contractors

1. Ideal for small to mid-sized firms

2. Offers job costing, invoicing, and integration with time-tracking apps

2. Sage 100 Contractor

1. Comprehensive construction-specific solution

2. Includes payroll, job costing, project management

3. Foundation Software

1. Built for larger construction firms

2. Handles complex payroll, union reporting, and certified payroll

4. Procore (with Accounting Integrations)

1. Excellent for project management and job tracking

2. Integrates with Sage, QuickBooks, and other platforms

5. CMiC

1. Enterprise-level solution with built-in accounting, ERP, and project tools

Look for features like:

1. Real-time job costing

2. AIA billing support

3. Payroll integration

4. Cloud access

5. Custom reporting

Construction Accounting Jobs and Career Opportunities

The demand for skilled accounting professionals in construction is growing. If you're considering a career shift, there are several promising paths:

Common Job Titles:

1. Construction Accountant

2. Project Accountant

3. Job Cost Analyst

4. Payroll Specialist (Construction)

5. Controller or CFO (Construction Firms)

Skills & Certifications:

1. CPA or relevant degree in accounting

2. Experience with job costing and construction software

3. CCIFP (Certified Construction Industry Financial Professional) credential

Industries Hiring:

1. General contractors

2. Specialty subcontractors

3. Real estate developers

4. Civil engineering firms

Construction accounting jobs offer competitive salaries, especially for those with field-specific experience or certifications.

Challenges and Best Practices in Construction Accounting

Challenges:

1. Managing multiple projects simultaneously

2. Change orders that affect costs and billing

3. Retainage tracking

4. Ensuring compliance with IRS rules and state laws

Best Practices:

1. Use specialized software

2. Review project financials weekly

3. Train staff on job coding and billing

4. Maintain clear documentation for audits and clients

Conclusion

Construction accounting isn’t just about crunching numbers—it’s about ensuring the financial health of every project and the entire business. Whether you’re a contractor trying to stay profitable or an accountant looking to specialize, understanding how to do construction accounting, choosing the best construction accounting software, and staying compliant with the correct accounting methods is crucial.

And if you're exploring a new career path, remember that construction accounting jobs are in demand and offer excellent growth opportunities.