Accounting software for contractors: what must it provide?

What makes contracting accounting different

• The project is the unit of profit: the question is not how much the company earned but how much each contract earned.
• Costs come from many sources: materials, labour, subcontractors, equipment and site expenses.
• Revenue comes in instalments: periodic progress claims by completion percentage approved by the consultant.
• Special obligations: retention, advance payments from the client and bank guarantees.
• A large workforce: payroll with WPS files, housing, iqamas and end of service.

How to organise project accounts

Do not create an expense account per project; your chart will end up with hundreds of accounts. Create the expense accounts once (materials, labour, subcontractors, equipment, site expenses) and make the project a dimension set on every document and entry. The project report is then built by filtering those accounts by project. Use cost centres for administrative departments (equipment, general management) charged to projects later by ratio.

The core contracting entries

Buying materials for a project

Debit Materials cost (Project A) and Input VAT; credit Supplier. If materials are stored before use, they enter inventory first and are issued to the project with an issue note.

The progress claim

An approved claim of 500,000 plus 75,000 VAT, with 10% retention: debit Customers 525,000 and Retention receivable 50,000; credit Project revenue (Project A) 500,000 and Output VAT 75,000. Retention is an asset collected when the warranty period ends.

The client’s advance payment

Debit Bank; credit Advances from customers (liability). It is then deducted from each claim at the agreed rate until exhausted.

Labour payroll

The payroll run posts each worker’s cost to their project or cost centre: debit Labour cost (Project A / B); credit Accrued salaries. End-of-service benefit is charged monthly as a provision.

What accounting software must provide

• Projects and cost centres as dimensions on every document, not as accounts.
• A budget per project and a budget-versus-actual report.
• A purchasing cycle with approval: purchase order, receipt, supplier bill, partial payment.
• ZATCA-compliant tax invoices for progress claims, and credit notes for adjustments.
• Payroll with WPS files allocated to projects, and site attendance.
• Site expenses from the phone with attachments, and employee expense claims.
• Permissions: the project manager sees their project, finance sees everything.