Skip to main content

    Glossary

    Construction Terms & Definitions

    Key construction bookkeeping and accounting terms explained in plain language.

    1ABCDEGJLMOPQRSUW

    B

    B&O Tax

    A business and occupation tax based on the gross income of a business, specifically required for contractors operating in Washington State.

    Backlog (Construction)

    The total dollar value of signed contracts for work not yet completed. The backlog-to-revenue ratio—ideally 6-12 months of work—is a key financial health indicator showing future revenue visibility and capacity utilization.

    Bad Debt (Construction)

    Accounts receivable that a contractor determines are uncollectible, typically after 120+ days with no realistic collection prospect. The IRS allows bad debt deductions for amounts previously included in income (Source: IRC §166, Bad Debts).

    Bid Bond

    A type of surety bond submitted with a contractor's bid proposal, guaranteeing that the contractor will enter into the contract at the bid price if awarded. If the contractor fails to honor the bid, the bond compensates the project owner for the difference.

    Bookkeeping Checklist (Construction)

    <p>A <strong>bookkeeping checklist for construction</strong> is a systematic list of recurring financial tasks that construction companies must complete on a daily, weekly, monthly, and annual basis to maintain accurate books and stay compliant with industry regulations.</p> <h2>Why Construction Companies Need a Bookkeeping Checklist</h2> <p>Construction businesses face unique accounting challenges—job costing across multiple projects, retention tracking, progress billing, certified payroll, and complex tax obligations. A structured checklist prevents costly oversights, supports accurate WIP (Work-in-Progress) reporting, and ensures your financials are audit-ready at all times.</p> <h2>Daily Bookkeeping Tasks</h2> <ul> <li><strong>Record all transactions</strong> — Log every expense, payment, and receipt as they occur. Waiting leads to lost documentation and inaccurate job costs.</li> <li><strong>Track labor hours by job</strong> — Allocate crew hours to specific projects for accurate job costing and payroll compliance.</li> <li><strong>Review accounts payable</strong> — Confirm vendor invoices match purchase orders and delivery receipts before scheduling payment.</li> <li><strong>Categorize expenses</strong> — Assign costs to the correct job, cost code, and expense category (materials, labor, subcontractor, equipment, overhead).</li> </ul> <h2>Weekly Bookkeeping Tasks</h2> <ul> <li><strong>Bank reconciliation</strong> — Match bank transactions against your books to catch errors, duplicates, or unauthorized charges early.</li> <li><strong>Process payroll</strong> — Calculate wages including overtime, per diem, union fringe benefits, and certified payroll requirements for prevailing wage jobs.</li> <li><strong>Update job cost reports</strong> — Review cost-to-date vs. budget for every active project to identify overruns before they become critical.</li> <li><strong>Manage lien waivers</strong> — Collect conditional and unconditional lien waivers from subcontractors before releasing payments.</li> </ul> <h2>Monthly Bookkeeping Tasks</h2> <ul> <li><strong>WIP schedule review</strong> — Calculate over/under billings using the percentage-of-completion method to understand true profitability.</li> <li><strong>AIA billing preparation</strong> — Complete G702/G703 pay applications for progress billing on commercial and public works projects.</li> <li><strong>Sales and use tax filing</strong> — Construction materials and services have varying tax obligations by state and municipality.</li> <li><strong>Accounts receivable aging</strong> — Follow up on past-due invoices to maintain healthy cash flow.</li> <li><strong>Equipment depreciation</strong> — Record monthly depreciation for owned equipment and heavy machinery.</li> </ul> <h2>Quarterly and Annual Tasks</h2> <ul> <li><strong>Estimated tax payments</strong> — File quarterly federal and state estimated taxes to avoid underpayment penalties.</li> <li><strong>Financial statement preparation</strong> — Generate balance sheet, income statement, and cash flow statement for bonding and banking requirements.</li> <li><strong>1099 preparation</strong> — Track subcontractor payments exceeding $600 for year-end 1099-NEC filing.</li> <li><strong>Bond capacity review</strong> — Ensure your financial statements support your target bonding limits for upcoming bids.</li> <li><strong>Year-end close</strong> — Reconcile all accounts, close out completed jobs, and prepare for CPA review or audit.</li> </ul> <h2>Common Mistakes to Avoid</h2> <p>The most frequent bookkeeping errors in construction include: mixing personal and business expenses, failing to allocate indirect costs across jobs, not tracking change orders in real time, and neglecting retention receivable/payable balances. Each of these can distort profitability reports and create problems during audits or bonding reviews.</p> <p>By following a comprehensive construction bookkeeping checklist, contractors can maintain financial clarity, maximize tax deductions, strengthen bonding capacity, and make data-driven decisions on every project.</p>

    Builder's Risk Insurance

    Builder's risk insurance (also called course of construction insurance) covers damage to a building under construction from events like fire, wind, theft, or vandalism. The policy typically covers the structure, materials, and equipment on site. Coverage ends when the project is complete or the building is occupied.

    Business Unit

    An organizational division within a construction or service company that separates operations by trade (HVAC, Plumbing, Electrical) or by service type (Service, Installation, New Construction). Business Units enable per-division profitability analysis and reporting.

    C

    Cash Flow Forecast

    A financial projection that maps expected cash inflows (progress billings, retainage releases, change order payments) against outflows (payroll, materials, sub payments, overhead) over a defined period—typically 13 weeks—to identify future cash gaps before they become emergencies.

    Certified Payroll

    Detailed reports required on government-funded projects that prove workers are being paid the legally required prevailing wage.

    Change Order

    A formal request to change the scope of work, price, or schedule of a construction contract after the original agreement is signed.

    Chart of Accounts

    A structured list of all financial accounts used by a construction company to categorize income, expenses, assets, and liabilities. A construction-specific chart of accounts includes job cost categories, equipment accounts, retainage, and work-in-progress accounts for accurate financial reporting.

    Committed Costs

    The total value of subcontracts and purchase orders that have been executed but may not yet be fully invoiced or paid. Committed costs represent contractual obligations that will become actual costs as work is performed. In Procore, committed costs are tracked through the Commitments module.

    Conditional Lien Waiver

    A document signed by a contractor or subcontractor that waives lien rights only after payment has been received and cleared. Unlike unconditional waivers, conditional waivers protect the signer by keeping lien rights intact until funds are confirmed.

    Construction Audit Preparation

    The process of organizing financial records, job cost reports, contracts, change orders, and compliance documentation in advance of a financial or regulatory audit. Proper preparation ensures accuracy in WIP schedules, revenue recognition, and payroll compliance.

    Construction Budget

    A financial plan that forecasts all costs for a construction project before work begins, translating the estimate into spending targets across labor, materials, subcontractors, equipment, and overhead—with contingency and markup—to guide profitability throughout the project lifecycle.

    Construction Cash Flow Management

    The process of monitoring, analyzing, and optimizing the timing of cash inflows and outflows on construction projects. Effective cash flow management accounts for retainage holdbacks, payment terms, material purchases, and progress billing cycles to avoid liquidity shortfalls.

    Construction Equipment Depreciation

    The systematic allocation of the cost of heavy equipment and machinery over its useful life for tax and accounting purposes. Construction companies can use methods like straight-line, MACRS, or Section 179 expensing to maximize tax deductions on equipment purchases.

    Construction Financial Statements

    Financial reports tailored to the construction industry, including the balance sheet, income statement, cash flow statement, and WIP schedule. These statements reflect job-specific revenue recognition, retainage, and overbilling/underbilling positions unique to construction accounting.

    Construction Payment Dispute

    A disagreement between parties on a construction project regarding payment terms, amounts, change orders, or completion milestones. Common causes include disputed change orders, incomplete work claims, retainage disputes, and slow-pay practices. Resolution mechanisms include preliminary notices, mechanics liens (RCW 60.04 in Washington), prompt pay act enforcement, mediation, and arbitration. Proper documentation and bookkeeping are the contractor's best defense in payment disputes.

    Contingency (Construction)

    A budget line item—typically 5-10% of estimated project costs—that covers unforeseen expenses, scope gaps, or conditions not apparent during estimating. Remodels and occupied-space projects typically warrant higher contingency than new construction.

    Contractor License (RCW 18.27)

    A mandatory registration required under Washington State law (RCW 18.27) for any person or entity performing construction work. Registration requires a surety bond, liability insurance, and workers' compensation coverage through the Department of Labor & Industries.

    Cost Code

    A standardized numerical or alphanumerical code used to categorize construction costs by type of work (e.g., 03-Concrete, 26-Electrical). Cost codes are used in project management software like Buildertrend and Procore to track expenses against budgets. Commercial contractors typically align cost codes with the CSI MasterFormat system.

    Cost to Complete

    The estimated remaining cost to finish a construction project, calculated as the total estimated cost at completion minus costs incurred to date. Cost to complete is a critical input for WIP reporting and percentage-of-completion calculations.

    Current Ratio

    A liquidity metric calculated by dividing current assets by current liabilities. Surety companies and banks use it to evaluate a contractor's ability to meet short-term obligations. A healthy range for construction companies is 1.3-2.0 (Source: 40 USC §3131, Miller Act).

    P

    Payroll Burden Rate

    The total cost of employing a worker beyond their base hourly wage, including employer-paid FICA taxes (7.65%), federal and state unemployment taxes (FUTA/SUTA), workers' compensation insurance, health insurance, retirement contributions, and paid time off. In construction, burden rates typically range from 35-50% above base wages according to the Bureau of Labor Statistics.

    Percentage of Completion

    An accounting method that recognizes revenue and expenses as a project progresses, rather than waiting until the job is completely finished.

    Performance Bond

    A surety bond that guarantees a contractor will complete a project according to the contract terms. If the contractor defaults, the surety company steps in to ensure project completion, protecting the project owner from financial loss.

    Prevailing Wage

    The minimum hourly wage rate set by the government that must be paid to workers on public works construction projects.

    Pricebook

    A comprehensive catalog of services, materials, and equipment with predefined pricing used by mechanical and service contractors. In ServiceTitan, the Pricebook includes material costs, estimated labor hours, burdened labor rates, overhead allocation, and target profit margins.

    Profit Margin (Construction)

    The percentage of revenue remaining after all direct and indirect costs are deducted from a construction project. Gross profit margin measures revenue minus direct job costs, while net profit margin accounts for overhead, G&A expenses, and taxes. Industry benchmarks typically range from 5-10% net for general contractors and 10-20% for specialty trades.

    Progress Billing

    A billing method where invoices are submitted at regular intervals based on the percentage of work completed on a construction project. Progress billing aligns revenue recognition with project milestones and is commonly used alongside AIA G702/G703 forms.

    Progress Invoicing

    A billing method where a contractor invoices for a percentage of completed work on a project rather than billing the entire contract amount at once. In QuickBooks, this is handled through the Progress Invoicing feature which creates invoices from estimates based on percentage complete per line item.

    Prompt Pay Act

    State and federal legislation requiring timely payment to contractors and subcontractors on construction projects. Washington's Prompt Pay Act (RCW 39.04.250) mandates payment within 30 days on public projects. Violations may entitle the payee to interest, attorney fees, and other remedies. Proper bookkeeping and documentation of payment timelines is essential for enforcing prompt pay rights.

    Learning Center

    In-depth articles that explain these terms in practice.

    Compliance Hub

    Tax, payroll, and bonding compliance guidance for contractors.

    Need help understanding these concepts?

    Our construction bookkeeping specialists can walk you through any of these terms and how they apply to your business.

    Schedule a Free Consultation

    We respect your privacy

    We use essential cookies to make our site work. With your consent, we may also use non-essential cookies to improve your experience and analyze traffic. You can change your preferences at any time. Privacy Policy