Contracting accounting is a specialized branch of accounting used to manage the financial aspects of construction and contracting projects within companies.

In this article, we will discuss contracting accounting in Saudi Arabia, including its key journal entries and what readers need to know about it.

What is Contracting Accounting?

Contracting accounting is a type of financial accounting that focuses on recording and tracking transactions related to construction and contracting projects.

The main elements of contracting accounting include documenting the financial costs of a project, as well as recording both incoming and outgoing financial transactions.

It plays a significant role in the success of contracting projects by ensuring a balance between costs and the available budget, which helps in achieving profitability.

There are several methods used in contracting accounting, one of the most common being the percentage of completion method.

This method can be applied by calculating the completion percentage based on labor progress, time elapsed, or financial costs incurred.

The most popular of these is the cost-based percentage of completion method, which uses the following formula:

(Actual cost to date / Estimated total cost) × 100

For example, if the estimated cost of a project is 100,000 and 20,000 has been spent during the first phase, the completion percentage is:

(20,000 / 100,000) × 100

Business Pillars Company provides certified public accounting services, including specialized services in contracting accounting.

Our contracting accounting services are delivered by professional accountants and auditors certified by the Saudi Organization for Certified Public Accountants.

Contracting Accounting and Project Statements

There are three types of statements in contracting accounting:

Executive Statement

Prepared in agreement with the project owner, this statement includes detailed breakdowns of all project elements, including projected profits.

It is used throughout the implementation phases of the project to compare planning versus actual execution.

Financial Statement

This involves calculating the net value of the executed work, considering only the work that has actually been completed.

It is usually submitted to the project owner as an invoice that reflects the expected completion percentage and net financials.

Final Statement

Submitted at the completion of the project, this statement marks the official project closeout and handover to the client.

Duties of a Contracting Accountant

Many construction companies hire a contracting accountant to manage their financial and tax-related matters.

Key responsibilities include:

• Managing all financial and accounting affairs of the company.

• Preparing daily or weekly client account reports.

• Creating financial documents and handling payments and receivables.

• Maintaining company ledgers and recording daily transactions.

• Correcting errors in financial reports.

• Preparing necessary entries for tax and deduction estimates.

• Issuing and organizing bank guarantees.

Key Journal Entries in Contracting Accounting

Important entries in contracting accounting include:

• Recording contracts in accordance with accounting standards.

• Accurately logging project costs with proper timestamps.

• Recording payments and receipts from project owners or subcontractors.

• Documenting deductions and project-related exclusions.

• Registering due taxes based on local regulations.

• Accounting for actual or projected asset depreciation in the project.

• Converting and recording foreign currencies into the project’s base currency.

In conclusion, we explored the topic of contracting accounting in Saudi Arabia, highlighting the key accounting systems used, types of project statements, and essential journal entries, along with the core responsibilities of a contracting accountant.

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