Construction Contractor Accounting: Job Costing and Progress Billing — Montreal CPA Firm Near You

Construction contractors operate in one of the most financially complex industries. Unlike traditional businesses that sell a single product or provide a standardized service, contractors handle customized projects, fluctuating material prices, subcontractor involvement, and extended timelines. This means accurate job costing is essential not only for profitability but also for avoiding cash flow shortages and disputes with clients. Job costing allows contractors to allocate every dollar spent—materials, labour, overhead, subcontractors, equipment, permits—directly to a specific project. When done correctly, it reveals which projects produce profit, which lose money, and where inefficiencies arise. Without proper job costing systems, contractors risk underestimating bids, overpaying suppliers, or mismanaging labour hours, all of which ultimately reduce margins.

Progress Billing and Revenue Recognition Rules
Progress billing is another core accounting requirement for construction businesses. Since projects often take months or even years, contractors cannot wait until a project is complete to bill clients. Instead, they bill periodically based on percentage completion, milestones, or schedule-based draws. Properly managing progress billing ensures cash continues to flow while work is performed, preventing contractors from financing projects out of pocket. Equally important is following the correct revenue recognition method—percentage of completion vs completed contract—depending on the nature of the project and applicable tax rules. Incorrect revenue recognition can lead to tax issues, CRA audits, and distorted financial statements that mislead lenders and partners.

Managing Labour, Subcontractors, and Materials
Labour tracking is essential because wages make up a significant portion of construction project costs. This includes regular hours, overtime, payroll burdens, workers' compensation, and employer taxes. Failing to assign labour costs accurately will distort job profitability. Subcontractor management is equally crucial, especially regarding T5018 reporting and verifying that subcontractors meet compliance requirements. Material costs fluctuate frequently due to supply issues, seasonal demand, or unexpected project changes. Strong accounting systems ensure materials are allocated to the proper job rather than absorbed into general expenses, preserving accurate profit calculations.

Overhead Allocation and Equipment Costing
Overhead such as insurance, office rent, fuel, depreciation, repairs, and administrative labour must be allocated proportionally to each project. Many contractors fail to include overhead in their bids, causing them to underprice jobs without realizing it. Equipment costing is another area where errors occur: repairs, maintenance, and depreciation on heavy equipment must be recorded and charged to projects in a systematic way. Without proper equipment tracking, contractors may believe a project is profitable when, in reality, they are failing to recover machinery costs.

Cash Flow Challenges Unique to Contractors
Construction businesses deal with major cash flow challenges: delayed payments from clients, retainage/holdbacks, cost overruns, and slow billing cycles. Efficient progress billing and accurate forecasting reduce the risk of running out of working capital. Contractors must know how to project incoming cash, outgoing costs, upcoming payroll runs, and supplier payments. Failure to do this leads to borrowing at high interest, damaging vendor relationships, or pausing projects due to lack of liquidity. Strong accounting gives contractors visibility into their cash flow reality long before problems arise.

Estimating, Bidding Accuracy, and Project Performance Reviews
Accurate estimates rely on historical job costing data. Without past performance metrics, contractors cannot produce reliable bids. Project reviews compare budgeted numbers to actual results and help contractors identify patterns: crews taking longer than planned, materials used inefficiently, subcontractors underperforming, or unexpected delays increasing overhead. This level of financial insight strengthens future estimates and enhances competitiveness in bidding.

Compliance, CRA Requirements, and Audit Prevention
Construction businesses face higher audit rates due to frequent subcontractor payments, cash transactions, write-offs, and irregular income patterns. CRA scrutinizes T5018 filing, GST/HST reporting, payroll remittances, equipment deductions, and revenue recognition. Strong accounting not only keeps contractors compliant but also minimizes audit risk by maintaining organized, traceable, project-specific documentation.

How This Benefits You and What To Do Next
Whether you are a general contractor, subcontractor, renovation specialist, or heavy-equipment operator, strong job costing and progress billing directly increase your profitability. With accurate financial data, you can identify cost overruns early, renegotiate pricing, reassign labour, or adjust project schedules. You can confidently bid on larger contracts because you know your true internal costs. Lenders and bonding companies take you more seriously when your financial statements follow proper construction accounting standards. The next step is implementing or improving a job costing system, adopting construction-specific accounting software, organizing labour tracking, and creating a structured progress billing process that aligns with your project timelines.

Why Choose Mackisen
Mackisen provides contractors with comprehensive accounting support designed around the realities of construction work. Our team understands the industry’s cash flow cycles, compliance risks, and costing challenges. We help implement job costing structures, guide progress billing setup, improve payroll processes, and prepare accurate financial statements that support lending and bonding requirements. With Mackisen, contractors gain clarity, control, and long-term profitability through reliable, industry-specific financial management.