The construction industry is fragmented, long-term, and complex in terms of cost, and sub-accounting is a central tool for building firms to achieve precision management, control the profits of the project and avoid fiscal risk. However, industry research has shown that most small and medium-sized construction enterprises have vague accounting targets in their sub-accounts, confusion in the attribution of costs, and inadequate fiscal adequacy, resulting in projects with high or hidden profits and difficulties in sustaining long-term enterprise development. From the bottom logic, existing pain points, core points and future trends, this paper will analyse in depth the sub-accounts of construction companies and will help industry practitioners to build a systematic perception and avoid areas of impropriety。
I. Central to the bottom logic of accounting for construction companies'subprojects
The core logic of the construction firm's sub-account accounting is “compatibility of responsibilities, precision integration, controllability of the whole process”, which is essentially to disentangle the enterprise's overall business data by individual project, achieving “one project, one set of accounts, one account”, supported by the nature of the construction industry's “project system” operation. Unlike common enterprise accounting, sub-accounts are subject to strict adherence to the requirements of the enterprise product cost accounting system (preliminary) and are subject to the core definition of a single contract. If a single contract contains multiple assets, it is divided according to the principle of separation of contracts, and if a group of contracts is of high relevance, it is subject to uniform accounting in accordance with the principle of contract consolidation to ensure that the object of accounting is consistent with the actual operating environment of the project。
In terms of core values, sub-accounting is not only a requirement for financial accounting, but also a key to managing risks and optimizing decision-making by construction companies. On the one hand, through sub-accounts, an enterprise can master the cost, income, profits of each project with precision, identify which projects are profitable and which project losses, and provide data support for the successor project; on the other hand, sub-accounts can achieve full-cycle fiscal control over the project, in particular the “breeding” of the project, so that advance vat payments, payments credits, etc. Under different tax-collection models can be accounted for as project accuracy and avoid tax risks arising from the accounting confusion. In addition, sub-accounting allows for clarification of resource consumption across projects, provides a basis for cost control, performance appraisal and promotes the transition of enterprises from “bold management” to “precision management”。
Ii. Dismantling of existing core pain points accounted for by construction companies
Despite the importance of sub-accounting for construction companies, most enterprises still face many pains in their physical exercise, particularly in small and medium-sized construction enterprises, which are more pronounced by constraints such as professionalism, management patterns, and are concentrated in four areas, which are common to the industry as a whole。
(i) fuzzy definition of accounting objects, resulting in data distortion
The precise definition of the object of accounting is a prerequisite for sub-accounting, but some construction enterprises tend to be “high construction, light accounting” and are not strictly subject to the principles of separation and consolidation of contracts. For example, the consolidation of a number of small, less relevant projects or the undivided accounting of individual contracts containing multiple assets has resulted in confusion between the costs and revenues of different projects and the inability to accurately reflect the true performance of individual projects. In addition, the lack of clarity in the definition of accounting objects for sub-contracting and temporary projects by some enterprises and the fact that the sub-contracting costs are not grouped separately further exacerbate the distortion of accounting data and make it difficult to base project decisions。
(ii) irregularization of costs and unreasonable rates of assessment
The costs of construction projects are complex and cover multiple dimensions, such as direct labour, direct materials, machinery usage fees, overheads, subcontract costs, etc. The normative nature of the cost aggregation directly affects the accuracy of the accounting results. Industry feedback indicates that there is a problem with the aggregation of costs for some enterprises: direct costs are not strictly differentiated from indirect costs, the criteria for sharing indirect costs (e. G., enterprise management costs, on-site management costs) are not reasonable, and the allocation is not reasonably determined in relation to the size of the project, working hours, budget cost, etc., resulting in some projects being overcosted and some projects being undercosted, which does not accurately reflect the actual cost consumption of the project. At the same time, the aggregation of turnover materials, machinery usage charges by some enterprises was not timely and was not amortized on the basis of the actual utilization of the project, further contributing to cost-accounting deviations。
(iii) inadequate fiscal matching and high tax risk
Following the “breeding up”, the construction industry tax model is divided into general and simple taxes, and the fiscal suitability of the sub-account is directly related to the enterprise's tax compliance and tax control. At present, some construction enterprises have problems with the mismatch between tax and accounting patterns: for example, the failure to account separately for the costs and income of the lump-sum, a-for-contracting and a-for-taxes, which are subject to a simple tax, has resulted in the exclusion of tax incentives from the simple tax; and, for projects that are subject to a general tax, the entry is not itemized, certified, there are problems of entry-off confusion, leakage, etc., and there are additional corporate tax burdens. In addition, the failure of some enterprises to pay vat separately on a project basis and to obtain timely sub-invoices for crediting further increases tax risk and may even face tax penalties。
(iv) inadequate fiscal integration and disconnect between accounting and accounting
While sub-accounting is not simply a financial exercise and needs to be more closely integrated with business and tax work, most construction enterprises have problems of “financial-business disconnection”. Operational departments (e. G., construction, procurement) did not synchronize project construction progress, material procurement, subcontracting, etc. With finance in a timely manner, resulting in delays in financial accounting, which did not reflect the real-time operational status of the project in a timely manner; the finance sector did not gain a thorough understanding of the project construction process and lacked a thorough understanding of the cost consumption and expenditure on the project site, resulting in a material discrepancy between the accounting content and the project. As stated by china's shareholders, the lack of integration of fiscal revenues can lead to inaccurate tax-related data and push enterprises to upgrade tax and accounting management, which would otherwise be difficult to adapt to industry development needs。
Iii. Core implementation elements for accounting for construction companies'subprojects
In response to the above, and in conjunction with relevant norms such as the enterprise cost accounting system for products (preliminary) and the enterprise accounting standards - construction contracts, the construction company subproject accounting requires four core elements to ensure that accounting is accurate, compliant, manageable and compatible with the management needs of the enterprise。
(i) precise definition of accounting objects and firm basis of accounting
Construction companies are required to define the subject of sub-project accounting strictly in accordance with the principle of “the priority, separation and integration of individual contracts”. For individual stand-alone contracts, the items corresponding to the contract are directly subject to accounting; for individual contracts containing multiple assets, separate construction plans and separate negotiated pricing are required to separate the object of accounting in accordance with the principle of separation of contracts; and for a group of contracts for the construction of one or more assets, the contract is required to be consolidated in accordance with the principle of contract consolidation if it is of high relevance, shared resources and unified management. At the same time, sub-projects and temporary projects need to be separately defined and classified as cost and income to ensure that the accounting data for each project are independent and complete。
(ii) regulate cost aggregation and sharing to ensure data accuracy
Cost aggregation is subject to the principle of “direct attribution, reasonable sharing”, with a strict distinction between direct and indirect costs. Direct costs (direct labour, direct materials, mechanical usage, subcontract costs, etc.) are directly accounted for in the cost accounting accounts for the corresponding project, e. G., construction personnel's remuneration is charged directly to the counterpart project and the cost of the procurement of materials is apportioned directly according to the project's acquisition; indirect costs (enterprise management costs, site management costs, etc.) are subject to reasonable cost sharing criteria, with the option of selecting manual hours, direct cost ratios, budget pricing ratios, etc., that are flexible in the light of the actual circumstances of the project and, once the criteria are determined, are not subject to random change to ensure the reasonableness and consistency of the contribution. At the same time, the aggregation and amortization of the working capital and the use of machinery will need to be strengthened to account for the actual utilization of the project in a timely manner and to avoid cost omissions or duplication。
(iii) appropriate fiscal policies to avoid tax risks
Sub-project accounting needs to be aligned with fiscal policy precision, with a focus on differentiated accounting of vat models. For projects to which a summary tax is applied (contractors, suppliers, old projects, etc.), the income, costs of the project will be accounted for separately to ensure that the conditions for the application of the summary tax are met and no deductions will be required, and vat will be paid in advance at the project site, as required; for projects to which a general tax is applied, the value added tax will be allocated separately, the credit certified in a timely manner, and the value added tax will be paid in advance, as required, to ensure that the amount of the sales tax is accurately matched with the amount of the revenue received, and to avoid leakages and errors. In addition, financial information needs to be organized separately by project, supporting documentation related to summary tax collection, subcontracting invoices, etc., to ensure that tax verifications provide complete information and avoid tax risks。
(iv) promoting fiscal integration in industry to achieve controllability
Construction companies need to break down sectoral barriers and promote a deep integration of business, finance and taxation to achieve control over the entire process of sub-accounting. Establish a mechanism for synchronization of cross-sectoral information, whereby operations synchronize in a timely manner the project's construction progress, material procurement, subcontracting, construction volume statistics, etc., with the finance department to ensure that the financial accounting is synchronized with the project's integrity; finance to go into the project site to understand the construction process and cost consumption and to accurately capture the costs, while providing feedback on accounting data to the operations department to advise on project cost control; tax authorities to plan project tax liabilities in advance in conjunction with sub-account accounting data, and to direct the finance department to avoid tax risk by making deductions, vat advances, etc. Building on the experience of the china-china bureau, fiscal management in industry could be strengthened on a step-by-step basis to ensure accurate and consistent accounting data throughout the project life cycle。
Iv. Future trends in construction projects
As the level of precision management in the construction industry rises and digital and intelligent technologies become available, three major trends will be observed in the accounting of construction companies'subprojects, gradually addressing the current physical pain points and improving their efficiency and quality。
One is the mainstreaming of digital accounting. In the future, an increasing number of construction enterprises will introduce digital accounting tools, automating, intelligentizing, reducing errors in manual accounting and improving accounting efficiency. The digitization system allows for automatic synchronization of operational and financial data, the automatic completion of processes such as cost aggregation, cost-sharing, fiscal disclosure, and real-time access to the accounting data of each project to enable real-time monitoring of the project's operations。
Second is the deep integration of accounting and control. Sub-accounting will no longer be limited to “accounting”, but will be integrated with project cost control, performance appraisal, risk management depth and become a core tool for enterprise precision management. Through sub-accounting data, enterprises can accurately analyse project profit and loss points, optimize cost control programmes, improve performance appraisal mechanisms, and pre-judge project financial and operational risks in advance and achieve risk prevention。
Thirdly, compliance requirements continue to rise. As tax policies, accounting standards continue to improve and industry regulation becomes more stringent, compliance requirements for construction company sub-accounting will continue to rise. Enterprises need to strictly follow the relevant policy norms, improve their accounting processes, ensure that accounting data are true, accurate and consistent, while strengthening internal controls, establishing a sound management system for sub-accounting, avoiding tax and business risks arising from accounting irregularities and promoting corporate health and long-term development。
V. Summary and interactive guidance
In summary, the construction company's sub-accounts are at the heart of the fine-tuning management of the enterprise, and their underlying logic is the matching of duties and responsibilities with precision, which still faces difficulties in terms of vague accounting objects, irregular attribution of costs and insufficient integration of fiscal revenues, which need to be addressed progressively through precise definition of accounting objects, regulation of cost-sharing, appropriate fiscal policies and promotion of fiscal integration in the industry. In the future, as the application of digital technologies and compliance requirements increase, subproject accounting will be an important support for building firms to improve their core competitiveness。
In the light of your practical experience, what difficulties have you encountered in accounting for the construction company's subproject? For example, on issues related to cost sharing, fiscal adaptation, please leave a message to the comment area and explore solutions
