Construction accounting gives you more than a record of revenue and expenses. It shows whether each project is profitable, how much cash is tied up in unfinished work, and when you can expect payment.
For Ontario contractors, accurate construction accounting is especially important when projects involve subcontractors, change orders, progress billing, statutory holdbacks, and long payment cycles. Four connected practices provide the clearest view: job costing, work-in-progress reporting, retainage or holdback tracking, and progress billing.
How construction accounting connects job costs to results
1. Track every cost to the right job
Job costing assigns project expenses to the specific contract that generated them. Instead of recording all expenses under broad categories, you track costs such as:
- Labour and payroll burden
- Materials and supplies
- Subcontractor invoices
- Equipment rentals and usage
- Permits, mileage, and other direct costs
This helps you compare actual costs with the original estimate. If material prices rise, labour hours increase, or a subcontractor submits unexpected extras, you can identify the impact before the job is complete.
Your accounting system should capture costs when they occur. Timesheets, purchase invoices, credit card transactions, and subcontractor bills should be coded consistently by job and cost category.
A properly structured accounting system setup can make this process easier by connecting your construction workflow to the right accounts, tools, and reporting structure.
2. Use WIP reporting to measure unfinished jobs
A work-in-progress, or WIP, schedule shows how active projects are performing before they are finished. It typically includes:
- Original contract value
- Approved change orders
- Estimated total cost
- Costs incurred to date
- Percentage of completion
- Revenue earned
- Billings to date
- Underbilling or overbilling
For example, if a project is 60% complete based on costs incurred but only 40% of the contract has been billed, you may be underbilled. You have performed work that has not yet been invoiced, which can create pressure on working capital.
The opposite can also happen. If you have billed 70% of a contract but completed only 50% of the work, you may be overbilled. This can support cash flow temporarily, but it also means future work must be completed before additional revenue is earned.
Reviewing WIP monthly helps you identify margin problems, billing delays, cost overruns, and projects that are using more cash than expected. Lenders, bonding companies, and other stakeholders may also request WIP information when assessing your business.
What Ontario contractors should know about holdbacks
In Ontario, the statutory term is generally holdback, while “retainage” is often used as a broader contractual term.
Under Ontario’s Construction Act, the basic holdback is 10% of the value of services or materials supplied under a contract or subcontract where a lien may arise. The holdback protects lien rights and must be tracked separately from ordinary receivables or payables.
Your accounting records should distinguish between:
- Holdback receivable: Amounts your customer or general contractor owes you but has withheld.
- Holdback payable: Amounts you have withheld from subcontractors and may need to release later.
Do not bury these balances in regular accounts receivable or accounts payable. Their collection and payment timing is different, and combining them can distort your cash-flow picture.
The Construction Act’s current holdback provisions include specific rules related to annual release, substantial performance, liens, and contract timing. Because the applicable rules can depend on the project, contract, and transition provisions, confirm legal requirements with qualified construction counsel.
How progress billing supports cash flow
Progress billing allows you to invoice as work is completed instead of waiting until the end of a long project. Common approaches include:
- Percentage-of-completion billing
- Milestone billing
- Schedule-of-values billing
A schedule of values divides the contract into components such as excavation, foundation, framing, mechanical work, and finishes. You then bill based on the amount completed for each component.
Progress billing should match your WIP schedule. Costs incurred, work completed, revenue earned, and billings to date should tell the same story. If they do not, you may have coding errors, delayed invoices, unapproved change orders, or an inaccurate estimate of completion.
For contracts covered by Ontario’s prompt payment rules, proper invoices are generally issued monthly unless the contract provides otherwise. The Act also sets payment timelines and notice requirements. Your billing process should therefore be accurate, complete, and consistent with the contract.
Build clearer reporting for better decisions
Reliable job costing and WIP reporting give you more useful financial information than a year-end income statement alone. With tailored financial reporting services, you can monitor project margins, cash requirements, outstanding holdbacks, billing status, and performance trends through clear monthly or quarterly reports.
If your records are behind or inconsistent, bookkeeping clean up can establish a reliable starting point. Ongoing full-cycle bookkeeping can then keep transactions reconciled, costs organized, and reports current.
Kleero provides practical bookkeeping services in Ontario for construction businesses that need accurate records and better financial visibility.
Ready to organize your construction accounting? Book a free consultation with Kleero and take the next step toward cleaner job costing, dependable WIP reporting, and better control over cash flow.