Top Guide: Construction Accounting Malaysia with AutoCount – 2025 Compliance Tips & Entries)

Construction Accounting Highlights

Why Construction Accounting Demands Special Attention

Construction accounting is fundamentally different from other industries due to its project-based nature, extended timelines, and complex billing structures. In Malaysia, contractors face additional challenges with:

  • ▶MFRS 15 compliance for revenue recognition
  • ▶Retention money handling (5–10% of contract value)
  • ▶Subcontractor management and withholding tax
  • ▶Work-in-Progress (WIP) tracking
  • ▶E-invoicing mandates (effective 2024)
This comprehensive 4,000+ word guide offers a detailed, step-by-step breakdown of construction accounting processes, specifically designed for AutoCount users in Malaysia.
Construction Accounting Frameworks

Understanding Construction Accounting Frameworks in Malaysia

Welcome to the detailed guide on Construction Accounting Frameworks! This document will explore important principles such as MFRS 15 for revenue recognition and provide insights into retention accounting practices.

1.1 Revenue Recognition: MFRS 15 Deep Dive

MFRS 15 requires construction companies to recognize revenue based on performance obligations rather than cash receipts.

Key Concepts:

  • ▶Output Methods: Recognize revenue based on milestones (e.g., completion of foundation, structure)
  • ▶Input Methods: Recognize revenue based on costs incurred (% of completion)
Practical Example: A RM1,000,000 project with RM600,000 costs incurred (60% complete): Revenue to Recognize = Contract Value × % Complete = RM1,000,000 × 60% = RM600,000

AutoCount Implementation:

  • ▶Create a custom field for "% Completion" in project records
  • ▶Set up automated revenue recognition rules
  • ▶Generate MFRS 15-compliant reports

1.2 Retention Accounting: Legal & Operational Guide

Retention money serves as quality assurance, typically:

  • ▶5% for private projects
  • ▶10% for government contracts

Accounting Treatment:

Type Account Classification When to Recognize
Client Retention Current Asset Upon billing
Subcontractor Holdback Current Liability Upon certification

Statutory Requirements:

  • LHDN: Retention is taxable upon billing (not release)
  • SOCSO: Must be disclosed in financial statements
Section 2: AutoCount Journal Entries

AutoCount Journal Entries - Detailed Breakdown

2.1 Progress Billing with Retention (Step-by-Step)

Scenario: Bill RM100,000 with 5% retention

Journal Entry:

Account Type Debit Credit Explanation
Accounts Receivable Current Asset 95,000 Net receivable after retention
Retention Receivable Current Asset 5,000 Amount withheld by client
Construction Revenue Income 100,000 Total contract value

AutoCount Configuration:

Navigate to Settings > Chart of Accounts
Create "Retention Receivable" (Account Code: 1205) as Current Asset
In Invoice Template, add retention as a deduction line item

2.2 Receiving Payment (Excluding Retention)

Journal Entry:

Account Type Debit Credit
Bank Account Current Asset 95,000
Accounts Receivable Current Asset 95,000

Reconciliation Process:

Match payment to original invoice
Flag unpaid retention in aging report

2.3 Subcontractor Payments with Retention

Scenario: RM100,000 certified payment with 10% retention

Journal Entry:

Account Type Debit Credit Notes
Subcontractor Expense Cost of Sales 100,000 Full certified amount
Accounts Payable Current Liability 90,000 Net payable
Retention Payable Current Liability 10,000 Held back

AutoCount Workflow:

Create subcontractor ledger with retention tracking
Set up auto-reminders for retention release dates

Advanced AutoCount Configuration

3.1 Project Costing Module Setup

Step-by-Step Guide:

Go to Modules > Job Costing
Activate "Track by Job" option

Create Cost Categories:

Category Account Code
Materials 5001
Labor 5002
Equipment 5003

Assign Costs to Projects:

Project: KL Tower (Job Code: J-2024-01)

Cost Type Amount (RM) Account Code
Material 50,000 5001
Labor 30,000 5002

3.2 WIP Reporting Configuration

Custom Report Setup:

Navigate to Reports > Custom Reports
Build WIP template with key fields:
  • Contract Value
  • Costs Incurred
  • Billed Amount
  • Over/(Under) Billing

Sample Output:

Project Contract Value Costs Incurred Complete% Revenue Recognized Billed Variance
KL Tower RM1,000,000 RM650,000 65% RM650,000 RM600,000 (RM50,000)
E-Invoicing & Compliance – 2024

E-Invoicing & Compliance – 2024 Construction Focus

4.1 E-Invoicing Implementation (2024 Update)

Construction-Specific Rules:

  • Progress claims require separate e-Invoices per certification
  • Retention amounts must be included in original invoice

AutoCount Integration:

Purchase IRBM-certified e-Invoice module
Map fields:
  • Project Code → "Kod Projek"
  • Retention Amount → "Potongan"

4.2 Withholding Tax (CP204) Management

Subcontractor Payments:

  • 6% WHT if no Form CP58
  • 2% WHT for Bumiputera contractors

AutoCount Process:

Deduct WHT at payment entry
Generate CP204 report monthly
Common Pitfalls & Solutions

Common Pitfalls & Solutions

5.1 Retention Accounting Errors

Mistake: Recording retention as income upon billing

Solution: Always book to Retention Receivable (Asset)

5.2 WIP Mismatches

Root Cause: Unrecorded change orders

Fix: Implement change order log in AutoCount

5.3 Subcontractor Disputes

Prevention:

  • Use AutoCount's document attachment for contracts
  • Set up approval workflows for certifications

📌 FAQ: Construction Accounting in Malaysia

Q1: How does GST or SST apply to retention?

GST/SST is applicable when retention is billed, not when it is collected. Use correct tax codes (SR, ZRL, etc.) in AutoCount to ensure accurate indirect tax reporting.

Q2: How to write off unreleased retention receivable?

After reasonable collection efforts, treat it as bad debt:

Debit: Bad Debt Expense (Expense)
Credit: Retention Receivable (Current Asset)

Q3: What are the best AutoCount reports for construction firms in Malaysia?

  • Job Costing Summary (Profit Center Analysis)
  • Retention Aging Report (Receivables Monitoring)
  • Project-wise Profit & Loss Reports

Q4: Can AutoCount handle multiple projects for one client?

Yes, you can create multiple job codes under the same customer profile to segment data.

Q5: What is MFRS 15 and why is it important in construction?

MFRS 15 enforces percentage-of-completion revenue recognition—especially relevant for long-term projects in construction where progress billing is common.

Q6: Does AutoCount allow partial invoice billing for progress claims?

Yes, AutoCount supports phase-wise or milestone-based billing, making it suitable for handling contract progress claims.

Why Mastering Construction Accounting with AutoCount Matters

Handling construction accounting in Malaysia isn’t just about staying organized—it’s about staying compliant, maximizing profitability, and avoiding costly tax errors.

With complexities like progress billing, retention money, subcontractor tracking, and WIP accounting, contractors need a robust system that simplifies these workflows.

AutoCount Accounting Software stands out as a reliable, locally-supported tool for managing all these construction-specific accounting needs. When set up correctly—with the right chart of accounts, project costing structure, and journal entry templates—AutoCount becomes a powerful ally in your business.

Whether you're preparing for e-Invoicing requirements, applying MFRS 15, or just trying to get your retention entries right, this guide ensures you have the foundation to do it correctly.

Ready to transform how you manage construction accounting? Leverage AutoCount today to gain real-time financial insights, full compliance, and tighter control over every project.

With AutoCount, you don’t just stay compliant—you thrive. Take control of your construction accounting today.