Accrual accounting matches costs and revenue to when they happen, not when cash moves. In construction, the most important accruals are unbilled costs: work your subs and suppliers have performed, or materials you’ve received, before their invoices reach accounting.
At month-end, accounting typically books an accrual entry for those costs to the right job and cost code, then reverses it at the start of the next month when the actual invoice is entered. Common sources:
- Subcontractor work in place where the pay app arrives after close.
- Materials delivered with no invoice yet.
- Payroll earned but not yet paid (wages for days after the last pay date).
- Equipment rentals running through month-end.
Why it matters
On a cost-to-cost job, percent complete is cost to date divided by estimated total cost, and earned revenue follows from it. If a month’s costs are understated because invoices are late, percent complete, earned revenue and the over/under billing position are all wrong. Then next month swings the other way. Accruals keep the WIP schedule honest.
Worked example
Illustrative: a sub completed $180,000 of work in September but sends its pay app on October 8, after close. Without an accrual, September’s job cost is $180,000 low. On a job with $15M estimated cost, that understates percent complete by 1.2 points ($180,000 / $15M) and earned revenue along with it.
Common mistakes
- Closing the month with known costs missing.
- Accruing without reversing, double-counting the cost.
- Accruing to the wrong cost code, distorting cost-to-complete.
How os.construction handles it
We’re building commitments, field progress and AP on one record, so likely unbilled costs can be flagged at close instead of found from memory. It’s in development.