A contractor’s books can fall behind in ordinary ways. The bookkeeper left and the work stopped. The company grew past a setup built for something smaller. A bank account was never reconciled after a busy season. A new owner inherited records nobody has checked. The result is the same: the owner cannot say which jobs make money, what is owed on retainage, or what a lender or surety will see.
This article describes what a catch-up project involves: which records are needed, how the starting point is set, how the accounts are reconciled and tied to each other, what the owner and the accounting side each supply, and what keeps the books current afterward. The examples are hypothetical and the amounts are illustrative only.
This article is general information about accounting work and not advice about a specific business.
What a catch-up project is, and is not
A catch-up project brings the accounting records current and reliable for a defined period, and puts a structure in place that can be kept up afterward.
- It is not just data entry. Entering months of transactions is part of it. The harder part is deciding what each transaction was, and that sometimes needs the owner’s memory.
- It does not decide tax questions in the books. If a correction affects a return that was already filed, that is raised with whoever prepares the returns. Late or amended returns are separate work.
- It does not fix habits by itself. If receipts, invoices, and job numbers still reach the office late, the books will fall behind again. That is why the project has to end in a monthly routine, described below.
Step 1: Take inventory of what exists
The first step is finding out what is there, so the plan matches the condition of the records. None of the following has to be gathered before a first conversation. Which records and what access are needed is identified when the scope is defined.
| Records a catch-up typically draws on | Why it is needed |
|---|---|
| Bank and credit card statements for every account, every month | Cash is the anchor. Everything else is checked against it. |
| The current accounting file, with access or a backup | Shows what has been recorded and how it was classified. |
| The most recent filed tax return and any prior financial statements | A reference point for the opening balances. |
| Payroll reports and filed payroll returns | Payroll is usually the largest cost, and it has outside records to compare against. |
| Loan, line of credit, and lease statements | Balances, interest, and what was borrowed or repaid. |
| Equipment and vehicle list with purchase documents | Separates assets from expenses. |
| Job list, contracts, change orders, pay applications, and retainage records | Needed to rebuild job-level cost and billing. |
| Supplier, subcontractor, and customer invoices | What the business owes and what it is owed. |
Missing items go on a list. A closed bank account with no statements is not a reason to stop. It becomes a documented open item, and the bank can usually supply copies.
Step 2: Set the opening point and handle prior-period issues
Every month is rebuilt from the one before it, so the starting point matters. It is usually the end of the last period known to be reliable: the last month reconciled to the bank, or the balance sheet from the last filed return. Rebuilding on an opening balance that was never checked carries any old error into every month after it.
Opening balances are checked against outside documents. A hypothetical example: the books show an equipment loan of $212,000 on the start date, and the lender’s statement shows $198,600. The $13,400 difference is traced to ten monthly payments whose $1,340 principal portion was recorded as an expense instead of reducing the loan ($1,340 × 10 = $13,400). The loan was overstated and prior expenses were overstated by the same amount.
Errors like this are handled in a consistent way:
- Where a correction is recorded depends on the facts. The reporting basis the books are kept on, whether the error is material, which periods it affects, and whether those periods are already in a filed return or in financial statements that were issued to a lender, surety, or anyone else decide the treatment. A small error in a period that is still open is usually corrected where it is found, as a labeled adjustment with a note of the period it relates to. A larger error, or one in a period that has already been relied on, may call for restating the earlier period instead. Either way the choice is documented, and the correction is not buried in an unrelated expense account.
- Differences that cannot be explained are listed, not plugged. They stay visible as open items until a document or the owner explains them.
- Anything that could affect a filed return is flagged to whoever prepares the returns. In the loan example, expensing principal could have reduced reported income in a prior year. Whether anything needs to change on a return is that preparer’s call.
- Closed periods are locked once reviewed, so numbers already used do not change quietly. If a locked period has to change, the change is documented and approved first.
Step 3: Reconcile in a fixed order
Each step below is repeated period by period from the starting point.
- Cash and credit cards. Each account is reconciled to its statement. Unidentified deposits and charges are listed for the owner.
- Payroll. Wages, withholdings, employer taxes, and benefits are checked against payroll reports and filed returns, and the payroll liability accounts are reconciled so that what the books say is owed matches what was reported.
- Debt and equipment. Loan payments are split between principal and interest. Equipment purchases are separated from repairs and expenses.
- Receivables, payables, and retainage. What customers owe, what the business owes suppliers and subcontractors, and retainage on both sides are reconciled to invoices and pay applications.
- Owner and related-party accounts. Draws, owner loans, personal charges, and transfers between entities are identified.
- Job costs. Costs sitting in general or uncoded accounts are assigned to jobs, using the structure in Job Costing for Contractors. Job totals are then reconciled to the ledger.
- Open jobs. Contract amounts, billings to date, and estimated cost to complete go into a work-in-progress schedule. See The WIP Schedule for Contractors.
- Review and lock. Adjusting entries are reviewed, differences are explained or documented, and closed periods are locked.
How the pieces tie together
The reconciliations are not separate chores. Each one checks another, and a difference in one usually shows up in a second.
| Tie-out | What is compared | A difference usually points to |
|---|---|---|
| Bank to ledger | Statement balance, adjusted for deposits in transit and outstanding checks, vs. the cash account | Unrecorded or duplicated items, or fees |
| Payroll register to ledger | Gross wages, taxes, and withholdings vs. payroll expense and liability accounts | Deposits expensed instead of reducing the liability, duplicate entries, or timing |
| Payables detail to control account | Open supplier and subcontractor bills vs. the payables balance | Payments applied to the wrong bill, or bills never entered |
| Receivables and retainage detail to control accounts | Open invoices and retainage held vs. the balances | Unapplied payments, or retainage recorded as regular receivables |
| Job cost reports to ledger | Costs by job vs. cost accounts for the same period | Costs on an uncoded job, or cost posted to a balance-sheet account |
| WIP schedule to ledger | Billings compared with revenue earned on each open job (overbilled or underbilled, on the reporting basis in use) vs. the balance-sheet accounts | A WIP schedule built from different data than the books |
A worked example: the payroll liability
A hypothetical month. The books show $18,900 in payroll tax liabilities. The payroll reports show $14,250 accrued and unpaid. The books are $4,650 higher than the reports.
| Item | Effect on the difference |
|---|---|
| A $3,900 tax deposit recorded as an expense, so the liability was never reduced | $3,900 |
| A $750 withholding entry posted twice | $750 |
| Total | $4,650 |
Once the two items are corrected, the books and the payroll reports agree at $14,250. If the difference had been left alone, payroll expense would have been overstated by $3,900 and the balance sheet would have shown a liability that did not exist.
A worked example: the bank reconciliation
A hypothetical example. The books show $46,000 in the operating account and the bank statement shows $31,750, a raw difference of $14,250. The unadjusted book and bank balances need not match. A bank reconciliation has two sides. The bank side is adjusted for legitimate timing items, such as checks that have been written but have not yet cleared (outstanding checks) and deposits that have been made but are not yet on the statement (deposits in transit). The book side is corrected for anything that was recorded wrongly or not at all. The account is reconciled when the two adjusted balances agree.
| Bank side | Amount |
|---|---|
| Balance on the bank statement | $31,750 |
| Add deposits in transit | $3,000 |
| Less outstanding checks | −$5,200 |
| Adjusted bank balance | $29,550 |
| Book side | Amount |
|---|---|
| Balance in the books | $46,000 |
| A customer deposit recorded twice | −$9,800 |
| Checks that cleared the bank and were never recorded | −$7,350 |
| Bank fees never recorded | −$700 |
| A deposit that cleared the bank and was never recorded | $1,400 |
| Corrected book balance | $29,550 |
The corrected book balance equals the adjusted bank balance, so the account is reconciled. The outstanding checks and the deposit in transit need no correction in the books. They stay on the reconciliation until they clear, and they are the reason the raw balances differ by more than the errors do ($14,250 raw difference = $16,450 of book corrections − $2,200 of net timing items). Each correction is traced to a document, or listed for the owner to identify. If the two adjusted balances do not agree, the account is not finished.
Why uncoded costs change the answer
A hypothetical example. Billings and revenue are not the same thing, so the assumption is stated first: the job is complete, the contract price was $240,000, all of it has been billed, and the revenue recognized on the job is the full $240,000. For a finished job, billings and revenue are equal. $150,000 of cost had been coded to the job, so it appears to have earned a 37.5% margin ($90,000 ÷ $240,000). Separately, $30,000 of materials for that job sat in an uncoded account because the supplier invoices carried no job number. Once the materials are traced to the job, its cost is $180,000 and its margin is 25% ($60,000 ÷ $240,000). The books balanced both times, and the margin was different.
For a job that is still open, margin is measured against revenue earned under the contractor’s method, not against amounts billed, and, where revenue is measured with a cost-to-cost method, uncoded cost also changes the percentage complete, which changes the revenue earned. See The WIP Schedule for Contractors.
This is why a cleanup that stops at the bank reconciliation may not be enough for a contractor. The job-level reassignment is what the owner will use to bid, hire, and renew bonding. See Construction Profit Fade.
What the owner supplies, and what the accounting side supplies
| The owner and office supply | The accounting side supplies |
|---|---|
| The records identified in the inventory | The plan, based on what the inventory shows |
| Answers about transactions: what a deposit was for, whether a charge was personal, which job a bill belongs to | The reconciliations, in the order above, with differences traced to documents |
| Decisions on policies, for example whether equipment is charged to jobs or how payroll burden is loaded | A written list of open items and assumptions |
| Estimated cost to complete on open jobs, from the people running them | The job-cost structure and the WIP schedule built from it |
| Prompt replies to questions, because unanswered questions can stall the work | Adjusting entries with notes, and locked periods once reviewed |
Duration depends on facts, so no general timeframe can be stated: the number of accounts and months, how complete the records are, how many transactions need research, how many jobs are open, and how quickly questions are answered.
From catch-up to a monthly routine
A catch-up that ends with current books and no routine will need doing again. The handoff has four parts:
- A cutoff and a rhythm. After the last catch-up month, each new month is closed on a regular cycle: bank and card reconciliations, payroll tie-out, payables and receivables review, job-cost reconciliation, and WIP update.
- Coding at the source. Job numbers on purchase orders and supplier invoices, time records that identify the job and cost code, and a set date by which receipts and bills reach the office.
- Named responsibilities. Who enters, who approves, and who reviews. The owner should not be the only reviewer.
- Reports the owner will use. A short monthly set that answers the questions that led to the catch-up, such as job margin, retainage, and cash.
Keep the original documents throughout. The IRS says records that support a tax return should be kept until the period of limitations for that return expires, which is generally three years, and employment tax records for at least four years after the date the tax becomes due or is paid, whichever is later.
When catch-up is not enough
If the records are current but the numbers still change after they have been used, or the close does not produce job-level figures on a consistent schedule, the next step is Fractional Controller work. If current records raise questions about cash, bonding, or lending, that is Fractional CFO work. For what a surety reads in the statements, see What Sureties Look At in Contractor Financial Statements.
Where this connects, and a way to start
Bringing records current where they have fallen behind is part of Outsourced Accounting, which can also continue as a monthly service after the catch-up. For the wider picture of contractor accounting, see Construction & Contractor Accounting.
If your books are behind, a useful first step is a conversation about the scope of a cleanup. Start a conversation and tell us what is current, what has fallen behind, which accounts and roughly how many months are involved, whether payroll and job costs are part of it, and what you need the books to do (a bonding renewal, a lender request, bid decisions). We can identify which records and access are needed when defining the scope. The scope is set from what exists, what is current, and what is missing.
Sources
This article makes one regulatory statement. The IRS page was read on October 14, 2026 (the page shows last reviewed June 30, 2026).
- IRS, How long should I keep records?: irs.gov/businesses/small-businesses-self-employed/how-long-should-i-keep-records
Corey Roder, CPA is the founder of Corey Roder, CPA PLLC. He is a licensed CPA who founded a construction company and served as its COO and CFO, managing the financial and operational decisions of that business. Earlier in his career he worked as an auditor at Grant Thornton. More about the firm: Company & People.
Corey Roder, CPA PLLC does not itself perform audits, reviews, or other assurance engagements. Need an audit, review, or other assurance engagement? We can help coordinate it. Corey Roder, CPA PLLC maintains referral relationships with independent CPA firms that provide these services. The assurance engagement is separately contracted with and performed by the independent CPA firm.