As a construction company preparing our own financials, what general ledger accounts should we add?

Tommy,

Your Chart of Accounts shows that you bill based on the completion method.  That is, you bill your customers at the time you have completed the project. In this analysis, this is the assumption I will go under.

I checked with William Banducci, CPA, MBA, a Manager at JTS Associates CPAs, P.C., who does way more construction accounting than I.

He remarked: 

“...To your point about billing on completion - normally construction financials include contract schedules for contracts in progress and completed contracts which for contracts in progress result in additional assets and liabilities.

“The liability is Billings in excess of costs and estimated earnings and the asset is called costs and estimated earnings in excess of Billings. If this is for internal purposes and not for GAAP, I suppose that's fine, but may be worth mentioning if they need GAAP financials down the road due to bonding or financing.

“You may also want to mention having a separate account for retainage receivable if that is applicable and also retainage payable if applicable on the subcontractor side since it looks like they have subcontractors.” 

We are in general agreement on the following:

Starting with the balance sheet, depending on your business and how it operates, you may at some point need additional accounts, such as Land in Fixed Assets. In Liabilities, you may need Accrued Expenses, Accrued Payroll, and Accrued Vacation.  If needed, your accountant will suggest them at your year-end.

For your Profit and Loss, it looks as if you captured the most important accounts.  As stated for the balance sheet, you may over time find you need to add some more accounts.

Combining or separating ledger accounts is a utilitarian decision based on two major factors: 

1) Looking at an Exit from the business, can you, using your chart of accounts, show the sales/costs associated with the way in which your business would be sold?

For example, you have three business lines, as profit centers.  If you collapsed the income accounts to just “Sales”, you would lose the ability at a touch of the button to segregate shed sales and building income.

2) Depending on your accounting staff you don’t want to make your Chart of Accounts too complicated, causing mis-postings and increasing the time it takes to close and month-end and the cost of auditing.

As for the sequence of GL accounts, on the Balance Sheet, it is the speed at which the account turns into or is relieved by cash.  So for Current Assets, Cash is first, followed by Accounts Receivable, Inventory, Notes Receivable and so on.  Long term assets tend to be Land first, then buildings, etc.

Liabilities are generally Accounts Payable, Notes Payable, and then Accrued accounts. Where Equity is Stock or ownership accounts, Retained Earnings, and lastly Net Income.

In the Profit and Loss statement, each section is up to your discretion. But in Revenue, the layout you showed is just fine.  Major income accounts first, Discounts and Sales & Allowance last.  In Cost of Goods Sold you basically mimic the order of the sales account.

As for other accounts, you can a) classify them as you wish and b) put them in any order.  Most times, we see the accounts within each classification in alphabetical order.