According to Circular 11/2021/TT-BXD, construction costs are not simply the money spent on buying bricks, sand, stone, or paying workers' wages. Instead, they constitute a system of scientifically classified items for investment management and tax settlement purposes. For a construction accountant, misunderstanding the nature of these cost categories can lead to the risk of cost deductions during tax settlement or distort the economic efficiency of a project worth hundreds of billions of dong.
This article will delve into the breakdown of construction cost structures, provide detailed accounting guidelines, and offer insights into risk management.
Decree 10/2021/ND-CP regulates the management of construction investment costs.
Decree 10/2021/ND-CP is currently the highest legal document regulating the management of construction investment costs. Accordingly, the total construction investment includes many types of costs, of which construction costs account for the largest proportion and include the following components:
Direct costs are the "backbone" of the entire project, including:
- Material costs: The value of construction materials, components, and semi-finished products used directly in the construction process.
- Labor costs: Salaries of construction workers and related allowances.
- Construction machinery costs: Costs incurred for using machinery and equipment directly involved in the construction of a project.
And other important costs:
- Indirect costs include general expenses (on-site business management, production management), temporary housing costs for accommodation and construction management, and other costs whose quantities cannot be determined from the design.
- Pre-calculated taxable income: The predetermined profit margin of a construction company is included in the project's estimated value.
- Value Added Tax (VAT): Based on the current tax rate applicable to construction activities.
Understanding the difference between construction cost estimates and construction final accounts is particularly important to ensure that expenditures are accounted for accurately and legally.
The difference between Construction Cost Estimate and Construction Final Settlement
A common mistake made by newcomers is equating the figures in the budget with the actual figures recorded in the accounting books.
- Estimated cost: This is a "pre-calculated" figure based on standards, unit prices, and design quantities.
- Final settlement: This refers to the "actual costs incurred," based on valid invoices and supporting documents. The accountant's responsibility is to explain any discrepancies between these two figures. If actual construction costs exceed the estimated costs without a contract addendum or supplementary approval, the business risks not receiving a tax refund or not being paid by the investor.
Understanding the difference between construction cost estimates and final accounts helps accountants grasp the accounting basis. Next, let's delve into the details of each construction cost item from an accounting perspective, with MAN – Master Accountant Network, to ensure accuracy and transparency in project management.
Details of construction cost items
Below is a detailed professional guide for each construction cost item that accountants need to understand.
Direct material costs (Account 621)
Material costs typically account for 60–70% of the total construction cost.
- Accounting entry: When materials are issued from the warehouse for the construction project, the accountant records a debit to account 621 / a credit to account 152. If purchased externally and delivered directly to the construction site, the entry is a debit to account 621 / a debit to account 1331 / a credit to account 331.
- Handling price discrepancies: In 2025, with the significant fluctuations in steel and concrete prices, accountants need to closely monitor both "Estimated Price" and "Actual Price". Any expenses exceeding the budget (due to waste or defects) will be excluded from the cost of goods sold for tax purposes.
- Loss allowance: It is necessary to clearly distinguish between losses during transportation and storage and losses during construction. Accountants must base their accounting on the allowances set by the Ministry of Construction for verification.
Direct labor costs (Account 622)
Managing labor costs within construction expenses is the area most prone to tax irregularities.
- Salary structure: Includes base salary, supplementary salary, and travel allowances, regional allowances (if any).
- Salary-based deduction rates in 2025: The latest base salary level needs to be updated to ensure correct deductions for social insurance and health insurance. The use of seasonal workers without proper employment contracts will result in construction costs being rejected during final settlement.
- Documentation: Must include a list of workers, photocopies of their ID cards, a time sheet certified by the site manager, and signatures on the payroll sheet.
Costs of using construction machinery (Account 623)
This is a specific item in construction accounting.
- Depreciation: Accountants need to allocate depreciation based on the useful life of the machinery (crane, excavator, bulldozer).
- Fuel costs: Fuel consumption standards (liters of oil/hour or liters/km) must be established to control and prevent operators from siphoning off fuel, which would drive up construction costs.
- For outsourced equipment rentals: A rental contract and VAT invoice must be provided.
General production costs (Account 627)
This includes costs for on-site management, utilities (electricity and water), and site security. To accurately calculate construction costs for each item, accountants need to choose an appropriate allocation method (usually allocation based on direct costs).
Methods for accumulating costs and calculating construction costs.
The cost calculation in construction differs from that in industrial production because construction products are unique and span multiple accounting periods.
Accountants need to create detailed accounting records for each project and project component. Avoid general accounting methods that make it impossible to separate the profit and loss of each project.
Standard construction cost accounting procedure
To ensure that construction costs are accurately and transparently accounted for, accountants need to follow a clear process. Below are five basic steps to help collect, allocate, and transfer construction costs.
| Step | Content |
| Input control | Open inventory cards and closely monitor incoming and outgoing materials. |
| Direct cost aggregation | Monthly transfers of accounts 621, 622, and 623 to account 154. |
| Allocation of overhead costs | Use account 627 to consolidate and allocate the year-end amount to account 154. |
| Determine work-in-progress costs | The final assessment of work in progress is based on the work volume confirmation report with the supervisor. |
| Cost of goods sold transfer | When the project is completed or a phase is accepted, the funds are transferred from account 154 to account 632 to determine the business results. |
Completing all five steps above not only helps accountants accurately control costs but also ensures transparent records, facilitating tax settlements and evaluating the economic efficiency of each project.
Factors affecting construction costs
In construction accounting, factors affecting construction costs include:
- Scale and design
- Materials and labor
- Contractor, material supplier
- Project progress and management
- Contingency costs
These factors directly impact the costs of raw materials, labor, machinery, management, and overhead, requiring detailed accounting for control and accurate financial reporting.
Documentation, Records, and Risk Control
A construction cost estimate is considered perfect not only when the figure is cheap but also when it is legally "clean."
Complete set of documents and records.
For the tax authorities to accept construction costs as reasonable, businesses need to have a contract, cost estimate, VAT invoice, acceptance certificate (Form No. 08/CP), and completion documents.
The errors correspond to the level of penalties.
Mismanagement of construction costs not only risks tax deductions but also leads to heavy administrative penalties under the law.
Violations of Cost Management regulations are stipulated in Decree 16/2022/ND-CP:
- Incorrect cost estimation: A fine of VND 50,000,000 to VND 70,000,000 will be imposed for preparing cost estimates that do not comply with the prescribed norms, unit prices, or legal regulations on construction cost management.
- Incorrect quantity calculation: A fine of VND 80,000,000 to VND 100,000,000 will be imposed if the quantity of work accepted and paid for does not match the actual construction or the approved budget.
Violations of accounting and documentation regulations as stipulated in Decree 41/2018/ND-CP:
- Documents that are not objective or accurate: A fine of VND 20,000,000 to VND 30,000,000 will be imposed for the act of preparing accounting documents that do not accurately reflect the economic content arising from construction costs.
- Incorrect account entry: A fine of VND 5,000,000 to VND 10,000,000 will be imposed if the accounting entries do not conform to the prescribed accounting account details.
Violations regarding invoices as stipulated in Decree 125/2020/ND-CP:
- Using illegal invoices is the biggest risk in the construction industry. Besides having all corresponding construction costs disallowed as deductible expenses when calculating corporate income tax, businesses can also face fines ranging from VND 20,000,000 to VND 50,000,000.
- In serious cases involving suspected tax evasion, businesses may be fined from 1 to 3 times the amount of tax evaded and face criminal prosecution under Article 200 of the Penal Code.
- Issuing invoices at the wrong time is punishable by a fine of VND 4,000,000 to VND 8,000,000 (this often occurs when a project has been completed and accepted but the invoice has not been issued immediately).
Manage construction costs It is an art of combining construction techniques, financial acumen, and legal expertise. Understanding penalties and strict regulations helps businesses avoid unnecessary economic losses.
Conclude
Construction costs are not just a matter of numbers; they are a measure reflecting the project management capabilities, legal compliance, and financial efficiency of construction companies. In the context of 2025, with its fluctuating material prices, wage policies, and requirements for transparent documentation, accurate, complete, and timely accounting of each construction cost item becomes crucial, especially in tax settlement and dealings with investors.
To minimize risks, save costs, and ensure the integrity of construction accounting records, businesses should proactively standardize their accounting and cost control processes from the outset. If your business needs a comprehensive, systematic, and long-term solution, full accounting service MAN's Master Accountant Network will help businesses effectively control construction costs, comply with regulations, and optimize project profitability.
Contact information MAN – Master Accountant Network
- Address: No. 19A, Street 43, Tan Thuan Ward, Ho Chi Minh City
- Mobile/Zalo: 0903 963 163 – 0903 428 622
- Email: man@man.net.vn
Content production by: Mr. Le Hoang Tuyen – Founder & CEO MAN – Master Accountant Network, Vietnamese CPA Auditor with over 30 years of experience in Accounting, Auditing and Financial Consulting.
MAN Editorial Board – Master Accountant Network
