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Accounting for the pro rata account: how do you go about it?

Accounting for the pro rata account: how do you go about it?

By Jennifer Montérémal

Published: 30 October 2024

When it comes to accounting, the building and civil engineering sector has its own special features and techniques.

The pro rata account is one such technique. Created when several companies share a single worksite, it is used to divide common expenses (water, electricity, security, etc.) between the parties involved.

When should it be set up and how does it work? Here is the essential information you need to know about accounting for the pro rata account.

Accounting for the pro rata account: definition and operation

What is the pro rata account?

The pro rata account is a specific account in a building company's chart of accounts. It is set up as soon as a site is managed by several participants. Its creation is not compulsory, but it is strongly recommended to avoid conflicts between companies.

In accounting terms, the pro rata account is used to record the joint expenses incurred on the site, i.e. the costs necessary for the smooth running of the work. These costs are unpredictable and difficult to calculate before the work begins.

How does the pro rata account work?

The pro rata account is used to record all charges and payments on account received and to account for VAT. It is usually funded on a pro rata basis according to the time spent by each company on the site, hence the term "pro rata account".

It is used for both public and private construction contracts, and can also be used for subcontractors.

👉 A provisional budget is drawn up at the start of the works and each company pays a deposit.

Accounting for the pro rata account: how is it set up and managed?

Organising the pro rata account

The pro rata account must be set up before work begins. There are no legal or regulatory provisions concerning its creation. It emanates from the common will of the building companies and is the subject of a management agreement between all the participants in the worksite.

Under this agreement, the participants agree on the creation of the pro rata account, its organisation, the allocation of expenses and the terms of payment.

☝️ The pro rata account management agreement is important because it creates a legal link between all the participating companies.

  • In public contracts, the Cahier des Clauses Administratives Générales (CCAG) Travaux makes no mention of the site pro rata account. It can therefore only be set up by agreement between the companies.

  • For private contracts, AFNOR standard NF P03-001 makes explicit reference to common interest expenses and the pro rata account in article 14 and appendices A, B and C. It proposes provisions to make it easier to set up and manage the pro rata account.

Who should manage the pro rata account?

Management of the pro rata account is entrusted to a manager, the owner of the largest lot (usually the shell).

This manager is responsible for drawing up the pro rata account invoices or calls for funds. Very often, the manager also advances funds to cover common expenses.

☝️ The accounting entries are validated by a control committee.

Accounting for the pro rata account

Expenses incurred jointly by construction companies working on the same site, also known as common interest expenses, are charged to the pro rata account as soon as prices are awarded.

Expenses covered by the pro rata account

Pro-rata account expenses are joint consumption expenses, including :

  • cleaning and maintenance of the premises ;
  • water, electricity and gas costs
  • cleaning of the site office and hygiene facilities; and
  • making the site safe...

☝️ Supplies or works intended to be received by the project owner, as well as costs that have not been determined in the contract documents, do not constitute expenses of common interest.

Allocation of charges to a pro rata account

The project manager lists all the expenses and allocates them between all the participants according to the allocation methods defined in advance.

Common expenses may be apportioned either on a flat-rate basis or on the basis of a statement of account. The latter option is the most common.

  • If expenses are allocated on the basis of a breakdown, the manager draws up a pro rata account monitoring table. He enters the actual expenses and divides them between the participants in proportion to the value of their contract. At the end of the project, the manager draws up the final statement and submits it to each company. Expenses are then deducted in proportion to the amount of each company's invoice. Depending on the advance payments made by the companies and the final account, any excess amounts are refunded.

  • If the distribution is on a flat-rate basis, the costs covered by the pro rata account are specified at the start of the works. Each party pays its own share. The manager does not have to justify the expenses recorded in the pro rata account.

Accounting for the pro rata account: how do you account for an invoice?

Accounting for the pro rata account varies according to the status of the company (manager or user).

  • For the manager, the expenses are included in the usual expense account. Calls for funds are recorded in a revenue class account (701).

  • For users, calls for funds are recorded in a subdivision of account 604000 (purchases of studies and services).

💡 Tip: the use of software specific to the building sector is recommended to easily account for the pro rata account.

One example is Graneet, a commercial and financial management solution aimed at SMEs in the construction industry. It gives these professionals greater visibility of all the costs associated with the site, so they can accurately track shared expenditure. What's more, Graneet integrates the pro rata account into the automatic calculation of the various invoices. In short, this is a software package that is sure to make your financial processes more reliable!

Closing the pro rata account for accounting purposes

Once the work has been handed over, the property manager closes the pro rata account. He sends each professional the charges to be paid in this respect. The contractors then have 15 days in which to submit their observations.

In order to balance the pro rata account in the accounts, revenue excluding tax must equal expenditure excluding tax. The control committee (or management committee) verifies and validates the balance of the pro rata account, as well as the allocation of expenses.

Once the pro rata account has been approved, the manager issues invoices for each company. The manager is responsible for collecting any remaining sums or returning any surplus funds.

Other specific accounting features of the construction industry

In addition to accounting for the pro rata account, the building and civil engineering sector has other specific features when it comes to invoicing.

  • Payments on account are advances of funds requested before the work is carried out. They can amount to up to 40% of the total cost.

  • Interim progress reports are issued as work progresses.

  • Three rates are applicable depending on the nature of the work. It is possible to have two different rates on the same invoice:
    • the reduced VAT rate of 5.5% applies to energy improvements ;
    • Intermediate VAT at 10% for renovation work;
    • the standard VAT rate of 20% applies to new build work.
  • When the work is accepted, the customer has the right to deduct a sum from the total invoice. This is known as the " retention de garantie ". This sum, which generally corresponds to 5% of the cost of the work, enables the customer to ensure that the work has been carried out properly. The holdback is to be returned after one year if no defects are found.

Pro-rata account and accounting: a summary

The pro rata account is set up when several companies are working on the same site. It is used to divide the costs of the work (electricity, water, site cleaning, etc.) between all the participants, on a charge or lump-sum basis, and in proportion to the time spent on the work. It is administered by a manager (usually the shell company) who records the costs and draws up the invoices, and is validated by a control committee.

Accounting for the pro rata account is a specific feature of the building and civil engineering sector, in the same way as advance payments, interim statements of work, VAT rates and the guarantee deduction.

Article translated from French