Contract Accounting vs. Regular Accounting: Key Differences

Introduction

Accounting plays a crucial role in any business, but when it comes to industries like construction and project-based work, specialized accounting practices are essential. In this article, we’ll explore the nuances of contract accounting, how it differs from regular accounting, and recommend some software solutions tailored for these industries.

Contract Accounting: A Unique Perspective

1. Project-Based Nature:

o    Contract accounting focuses more on projects with specific deliverables. Each contract becomes a separate profit center, allowing precise tracking of revenue and expenses for individual jobs.

o    Regular accounting, on the other hand, covers the entire business, not just project-related work.

2. Job Costing:

o    Contract accounting heavily relies on job costing. It tracks both direct and indirect costs associated with each project. This complexity arises because construction job sites are often decentralized, and projects can span long periods.

o    Regular accounting uses standard cost accounting methods applicable to most businesses.

3. Revenue Recognition:

o    Contract accounting follows ASC 606 (Standards Codification 606)/IFRS 15 for revenue recognition. This standard outlines how revenue from contracts and project-related expenses should be recognized.

o    Regular accounting adheres to standard cash or accrual accounting practices.

4. Customization and Complexity:

o    Contract accounting deals with customized sales, varying project requirements, and long-term production cycles. It must handle complexities like retainage (withheld payments) and project-specific adjustments.

o    Regular accounting faces fewer customization challenges.

Best Software Solutions

1. Foundation Software:

o    Features: Financial management, job costing, project management, AIA billing, retainage tracking, customizable invoices, payroll module, and consolidated reporting.

o    Pros: Comprehensive solution for construction-specific needs.

o    Cons: Some operational glitches reported.

o    Pricing: Starting at $400/month¹.

2. Viewpoint Spectrum:

o    Features: Full-featured construction ERP, including accounting, payroll, equipment tracking, service management, and dispatching.

o    Pros: Advanced accounting system, multi-currency processing, and robust project setup module.

o    Cons: None reported.

o    Pricing: Demo available¹.

Conclusion

Contract accounting bridges the gap between financial management and project-specific requirements. As industries like construction and contracting continue to evolve, specialized software solutions empower businesses to thrive in this dynamic landscape.

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In this article, we’ve explored the unique aspects of contract accounting, its differences from regular accounting, and recommended software solutions. Whether you’re managing construction projects or navigating complex contracts, choosing the right tools ensures accurate financial tracking and informed decision-making. Remember, precision matters, especially when every project contributes to your bottom line. Choose wisely, and let your financial software work as hard as your team does.

1: Source