Financial Reporting for Construction
Document Type: Procedure
Version: 1.0
Last Updated: February 2026
Distribute To: CFO, Controllers, Executives
Purpose
Establish procedures for preparing accurate, timely financial reports for management, lenders, and sureties.
Construction Financial Statement Considerations
Unique to Construction:
| Item | Description |
|---|---|
| Revenue recognition | % of completion method |
| Over/under billings | Balance sheet impact |
| Backlog | Key health indicator |
| Retention | AR and AP considerations |
| Job cost accounting | Project-level profitability |
| WIP | Critical schedule |
Monthly Financial Package
Components:
-
Income Statement
- Revenue by project/type
- Gross profit analysis
- G&A expenses
- Net income
-
Balance Sheet
- Assets and liabilities
- Working capital
- Equity position
-
Cash Flow Statement
- Operating cash flow
- Investing activities
- Financing activities
-
WIP Schedule
- All open projects
- % complete
- Over/under billing
- Projected final profit
-
Backlog Report
- Committed work
- Work to be performed
- Duration
-
Key Metrics
- Financial ratios
- Operational KPIs
- Trends
Income Statement
Construction Income Statement Format:
================================================================
INCOME STATEMENT
================================================================
Period: ___________________
Month YTD
───────── ─────────
CONTRACT REVENUE:
Project A $________ $________
Project B $________ $________
Project C $________ $________
Other $________ $________
TOTAL REVENUE $________ $________
COST OF REVENUE:
Labor $________ $________
Materials $________ $________
Subcontractors $________ $________
Equipment $________ $________
Other direct costs $________ $________
TOTAL COST OF REVENUE $________ $________
GROSS PROFIT $________ $________
Gross Margin % ____% ____%
G&A EXPENSES:
Salaries & benefits $________ $________
Rent & facilities $________ $________
Insurance $________ $________
Professional fees $________ $________
Other G&A $________ $________
TOTAL G&A $________ $________
G&A as % of Revenue ____% ____%
OPERATING INCOME $________ $________
OTHER INCOME/EXPENSE:
Interest income $________ $________
Interest expense $________ $________
Other $________ $________
NET INCOME BEFORE TAX $________ $________
Net Margin % ____% ____%
Income tax expense $________ $________
NET INCOME $________ $________
================================================================
Balance Sheet
Construction Balance Sheet Format:
================================================================
BALANCE SHEET
================================================================
As of: ___________________
ASSETS:
Current Assets:
Cash and cash equivalents $________
Accounts receivable $________
Retention receivable $________
Costs in excess of billings $________
Inventory/materials $________
Prepaid expenses $________
Other current assets $________
Total Current Assets $________
Property & Equipment:
Equipment $________
Vehicles $________
Office equipment $________
Less: Accumulated depreciation $________
Net Property & Equipment $________
Other Assets:
Deposits $________
Other $________
Total Other Assets $________
TOTAL ASSETS $________
================================================================
LIABILITIES & EQUITY:
Current Liabilities:
Accounts payable $________
Retention payable $________
Billings in excess of costs $________
Accrued payroll $________
Accrued expenses $________
Current portion LTD $________
Line of credit $________
Total Current Liabilities $________
Long-Term Liabilities:
Notes payable $________
Equipment loans $________
Other long-term $________
Total Long-Term Liabilities $________
Total Liabilities $________
Equity:
Common stock $________
Retained earnings $________
Current year earnings $________
Total Equity $________
TOTAL LIABILITIES & EQUITY $________
================================================================
Working Capital: $________
Current Ratio: ____
Debt to Equity: ____
================================================================
Key Financial Ratios
Liquidity Ratios:
| Ratio | Formula | Benchmark |
|---|---|---|
| Current Ratio | Current Assets ÷ Current Liabilities | over 1.25 |
| Quick Ratio | (Cash + AR) ÷ Current Liabilities | over 1.0 |
| Working Capital | Current Assets - Current Liabilities | Positive |
Leverage Ratios:
| Ratio | Formula | Benchmark |
|---|---|---|
| Debt to Equity | Total Liabilities ÷ Equity | under 3.0 |
| Debt to Assets | Total Liabilities ÷ Total Assets | under 0.75 |
Profitability Ratios:
| Ratio | Formula | Benchmark |
|---|---|---|
| Gross Margin | Gross Profit ÷ Revenue | over 12% |
| Net Margin | Net Income ÷ Revenue | over 2% |
| Return on Equity | Net Income ÷ Equity | over 15% |
Efficiency Ratios:
| Ratio | Formula | Benchmark |
|---|---|---|
| AR Days | (AR ÷ Revenue) × 365 | under 45 |
| Backlog Months | Backlog ÷ Monthly Revenue | 6-18 |
| Revenue/Employee | Revenue ÷ Employees | over $250K |
Backlog Report
Backlog Components:
Committed Backlog:
Signed contracts $__________
Approved change orders $__________
Total Committed $__________
Less: Revenue recognized $__________
Remaining Backlog $__________
Pending (Awarded, not signed): $__________
Total Backlog + Pending: $__________
Backlog Months: ______
External Reporting
Bank Reporting:
Typical Requirements:
- Annual audited financials
- Quarterly internal financials
- Monthly borrowing base (if LOC)
- Compliance certificates
- Backlog report
Surety Reporting:
Typical Requirements:
- Annual audited financials
- Quarterly WIP
- Work on hand report
- Cash flow projections
- Personal financial statements (owners)
Bondholder Requirements:
Check specific bond covenants for:
- Financial ratio requirements
- Reporting frequency
- Certification requirements
Month-End Close Process
Close Checklist:
Week 1:
- All revenue recognized
- All costs posted
- Payroll finalized
- AP cut-off applied
Week 2:
- WIP schedule complete
- PM review of projects
- Adjusting entries
- Account reconciliations
Week 3:
- Financial statements prepared
- Management review
- Final adjustments
- Package distributed
Close Calendar:
| Day | Activity |
|---|---|
| +3 | Preliminary close |
| +7 | WIP complete |
| +10 | Draft financials |
| +12 | Management review |
| +15 | Final package |
Audit Preparation
Annual Audit:
Prepare:
- Confirm audit timing
- Provide PBC (Prepared by Client) list
- Schedule confirmations
- Prepare workpapers
- Organize support
Common Audit Areas:
- Revenue recognition
- Over/under billings
- AR collectibility
- Insurance accruals
- Related party transactions
Related Documents
- WIP Reporting
- Job Cost Procedures
- Cash Flow Management
- Budget vs. Actual
Template provided by support.construction. Accurate financials are the foundation of good decisions.