Before You Start

This guide assumes you have knowledge of construction contracts and P&L terminology, and access to a robust accounting system like QuickBooks Premier or similar.

Overview

60 min
Setup Time
Expert
Difficulty
Quarterly
Maintenance

What You’ll Learn

  • How to structure your chart of accounts for detailed job costing
  • Implementing progress invoicing and revenue recognition
  • Managing Work in Progress (WIP) schedules accurately
  • Strategies for effective cost segregation and profitability analysis

1. Preparation Steps

To accurately track construction projects, a specific chart of accounts structure is crucial:

Required Accounts

  • Contract Revenue (Income)
  • Direct Labor (Cost of Goods Sold)
  • Direct Materials (Cost of Goods Sold)
  • Subcontractor Costs (Cost of Goods Sold)
  • Overhead Applied (Cost of Goods Sold)
  • WIP Asset Account (Other Current Asset)

Optional (but recommended)

  • Equipment Depreciation (Expense)
  • Project Management Fees (Income)
  • Warranty Reserve (Liability)

2. Choosing Your Accounting Software

Selecting the right software is paramount for robust job costing.

Software Option A: Basic Accounting Software (e.g., QuickBooks Online Basic)

This is typically insufficient for complex construction projects.

Pros:
  • Cost-effective for small projects.
  • Simple P&L reports.
  • Easy to learn.
Cons:
  • Lacks advanced job costing.
  • No WIP management.
  • Limited multi-phase project tracking.

Software Option B: Industry-Specific Solutions (e.g., QuickBooks Premier/Enterprise, Sage 300 Construction)

These are paid apps that offer far more control and specialized features.

Expert Tip: For accurate job costing and WIP management, an industry-specific solution like QuickBooks Premier (Contractor Edition) or a dedicated construction ERP is essential. These systems handle complex revenue recognition and cost tracking, matching industry best practices.

3. Step-by-Step: Job Costing Workflow

Here is the high-level workflow for managing job costs effectively.

Here is a sample code block to show how a job cost entry might look.

{
  "job_id": "PRJ-2025-001",
  "phase": "Foundation",
  "cost_type": "Labor",
  "amount": 7500.00,
  "date": "2025-01-15",
  "description": "Concrete pour and rebar installation"
}

4. Implementing Job Costing and WIP

  1. 1

    Define Jobs and Phases

    Create a ‘Job’ for each contract and break it down into ‘Phases’ (e.g., Foundation, Framing, Roofing) within your accounting software.

  2. 2

    Allocate Direct Costs

    Ensure all direct labor, materials, and subcontractor invoices are tagged to the correct Job and Phase at the point of entry.

  3. 3

    Distribute Indirect Costs

    Establish a clear method for allocating overhead to projects, such as a percentage of direct costs or labor hours, ensuring accuracy.

Critical: WIP Schedule Accuracy

Inaccurately estimating or updating your Work in Progress (WIP) schedule can lead to misstated financial statements and revenue recognition errors. Review monthly or quarterly.

5. Revenue Recognition and Reporting

Key Reporting Actions Checklist

  • Calculate percentage of completion for each job
  • Generate WIP schedule (monthly/quarterly)
  • Review job profitability reports against budget
  • Adjust revenue entries based on progress invoicing

Need Help?

Expert Consulting Available

Navigating complex construction accounting challenges? Our specialized consultants provide tailored solutions for job costing, WIP, and revenue recognition.

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