Construction Bookkeeping: A Complete Job Costing Guide

Construction bookkeeping isn’t like other bookkeeping. The long project cycles, progress billing, job costing requirements, and cash flow challenges make it one of the most complex industries to manage financially.

I’ve worked with general contractors, specialty trades, and construction companies throughout Utah. The ones who thrive have one thing in common: they understand their numbers at the job level.

This guide covers everything you need to know about construction bookkeeping, with a deep focus on job costing—the key to knowing if you’re actually making money.

Why Construction Bookkeeping Is Different

Before diving into specifics, let’s understand what makes construction unique:

Long Project Cycles

A project might span 3-18 months. You can’t wait until completion to know if you’re profitable—by then it’s too late to fix problems.

High Material and Labor Costs Upfront

You buy materials and pay labor before you collect payment. Cash flow timing is critical.

Progress Billing Complexity

You bill based on work completed, not at point of sale. Tracking what’s been billed versus what’s complete requires careful attention.

Multiple Cost Types

Every project has labor, materials, subcontractors, equipment, and overhead. Understanding costs by category by job is essential.

Retention and Holdbacks

Customers often hold back 5-10% until project completion. This affects cash flow and accounting.

Variable Profitability by Job

One job might make 25% margin while another loses money. If you don’t track by job, you won’t know which is which.

Job Costing Fundamentals

Job costing is the practice of tracking all costs associated with a specific project. It’s the foundation of construction financial management.

Why Job Costing Matters

Know which jobs make money: Not all jobs are equally profitable. Some you should pursue; others you should avoid.

Catch problems early: If a job is running over budget, you want to know while you can still act.

Improve estimating: Historical job cost data makes future estimates more accurate.

Price work appropriately: Understanding your true costs lets you price to achieve target margins.

Make better decisions: Should you chase that type of work? Can you afford that equipment? Job data answers these questions.

The Structure of Job Costs

Every job should track costs in these categories:

Direct Labor

Wages for workers on the job
Payroll taxes and benefits attributable to those hours
Track by employee and by task/phase when possible

Materials

All materials purchased for the job
Track by material type and by phase
Include delivery and any material waste

Subcontractors

All subcontractor invoices for the job
Track by sub and by scope of work
Include any backcharges or change orders

Equipment

Equipment rental specific to the job
Equipment owned but used on job (internal rental rate)
Fuel, maintenance, and repairs for job-specific use

Other Direct Costs

Permits and fees
Job-specific insurance
Dump fees and disposal
Temporary utilities
Any other cost directly attributable to the job

Allocated Overhead

Portion of general company overhead allocated to job
May include office staff, general insurance, vehicles, etc.
Allocation method varies (percentage of direct costs, percentage of revenue, etc.)

Setting Up Job Costing in Your Accounting System

Most accounting software supports job costing. Here’s the general setup:

1. Create a job for each project

Use consistent naming (e.g., Job # - Client Name - Address)
Include start date, estimated completion, contract value

2. Set up cost categories/classes

Labor, Materials, Subcontractors, Equipment, Other
Consider sub-categories for larger jobs

3. Create items for common costs

Labor rates by type
Common materials
Standard equipment

4. Establish a workflow

Every bill tagged to a job
Every time entry tagged to a job
Every material purchase tagged to a job

5. Build reports

Job profitability report
Job cost detail report
Work in progress report

Tracking Costs by Job

The discipline of job costing requires capturing cost information at the point of transaction.

Labor Tracking

For each worker, each day:

How many hours worked?
On which job?
Doing what type of work? (if tracking by phase)

Options for tracking:

Manual timesheets (simple but error-prone)
Digital time tracking apps (Busybusy, ClockShark, etc.)
Biometric time clocks at job sites
GPS-based tracking

Tip: Allocate burden (payroll taxes, workers’ comp, benefits) to labor costs. True labor cost is 20-35% higher than raw wages.

Material Tracking

For every material purchase:

Which job is it for?
What material category?
Was it all used on that job?

Challenges:

Materials purchased for multiple jobs
Materials left over and returned to stock
Materials moved between jobs

Solutions:

Require job numbers on all purchase orders
Track inventory in/out by job
Establish material transfer processes

Subcontractor Tracking

For every subcontractor invoice:

Which job?
What scope of work?
Change orders vs. original contract?

This is usually simpler than labor/materials since subs typically invoice by job.

Equipment Tracking

Rented equipment: Tag the rental invoice to the job—straightforward.

Owned equipment: More complex. Options include:

Internal rental rate based on equipment value and expected life
Actual cost tracking (fuel, maintenance) plus depreciation
Flat daily/weekly rate applied to jobs using equipment

Whichever method you choose, be consistent.

Overhead Allocation

Some costs don’t tie directly to a single job:

Office rent and utilities
Office staff salaries
General insurance
Company vehicles not assigned to jobs
Professional services

Allocation methods:

Percentage of direct costs: Overhead ÷ Total Direct Costs = Overhead %
Percentage of labor: Overhead ÷ Total Labor = Labor burden %
Percentage of revenue: Overhead ÷ Total Revenue = Overhead %
Activity-based: Allocate based on specific drivers

No method is perfect. Choose one, apply it consistently, and review periodically.

Progress Billing and Revenue Recognition

Construction revenue recognition is more complex than “invoice when done.”

Percentage of Completion Method

Most construction companies use percentage of completion:

Revenue recognized based on work completed, not billed
Costs recognized as incurred
Profit recognized proportionally

Example:

$100,000 contract
40% complete
Recognized revenue: $40,000
If $35,000 in costs incurred: $5,000 profit recognized

Tracking Progress

How do you know you’re 40% complete?

Cost-to-cost method: Costs incurred ÷ Estimated total costs = % complete Units of work method: Units completed ÷ Total units = % complete Milestone method: Complete specific milestones = specific % complete

Billing Schedules

Common billing approaches:

Progress billing: Bill based on work completed (monthly)
Milestone billing: Bill at specific project stages
Draw schedule: Bill according to agreed-upon schedule

Overbilling vs. Underbilling:

Overbilled: You’ve billed more than % complete (you have client’s cash)
Underbilled: You’ve billed less than % complete (client owes you)

Understanding your billing position helps manage cash flow.

Work in Progress (WIP) Reporting

The WIP report is the key financial tool for construction companies.

What WIP Shows

For each job:

Contract value
Costs to date
Estimated total costs
Estimated profit
Percentage complete
Revenue to date
Billings to date
Over/under billing

Why WIP Matters

Job health check: Quickly see which jobs are on track and which are in trouble.

Cash flow insight: Overbilled jobs are providing cash; underbilled jobs are tying up cash.

True profit picture: Your P&L might look good, but WIP shows the real story when jobs complete.

Audit and bonding: Bonding companies and auditors review WIP closely.

Sample WIP Report

Job	Contract	Costs	Est. Total	Est. Profit	% Comp	Revenue	Billed	Over/Under
A	$100K	$35K	$80K	$20K	44%	$44K	$40K	($4K)
B	$75K	$50K	$65K	$10K	77%	$58K	$65K	$7K
C	$200K	$20K	$160K	$40K	13%	$26K	$30K	$4K

Reading this:

Job A: Slightly underbilled (you’ve done $44K of work but only billed $40K)
Job B: Overbilled (you’ve billed $65K but only completed $58K of work)
Job C: Early stage, slightly overbilled (good for cash flow)

Creating Accurate WIP

WIP accuracy depends on:

Accurate cost tracking by job
Realistic estimated costs at completion
Honest assessment of completion percentage

Estimated costs at completion should be updated regularly. Your original estimate may have been wrong, or the job may have changed.

Cash Flow Challenges in Construction

Cash flow kills construction companies more than anything else.

The Timing Problem

Typical payment cycle:

Month 1: Buy materials, start work
Month 2: Continue work, incur more costs
End of Month 2: Submit progress billing
Month 3: Client pays (maybe—often slower)

You’re floating 60-90 days of costs before payment arrives.

Retention

Customers hold 5-10% until completion:

On a $100,000 job, that’s $5,000-$10,000 not collected until final
If you’re running 10 jobs, that’s $50,000-$100,000 tied up in retention
Some retention drags for months after completion

Solutions

Require deposits: Get material money upfront when possible.

Bill promptly: Submit invoices the day they’re due, not a week later.

Follow up aggressively: Don’t let invoices age. Call early and often.

Negotiate payment terms: Front-loaded draw schedules when possible.

Line of credit: Have credit available to bridge timing gaps.

Profit First for Contractors: Modified Profit First with accounts for materials, labor, and job reserves.

Common Construction Bookkeeping Mistakes

Mistake 1: Not Tracking by Job

Knowing total company profit is meaningless if you don’t know which jobs made money. Some contractors have great years where 2 jobs made all the profit and 10 broke even or lost money. Without job costing, you’d never know.

Mistake 2: Ignoring Burden on Labor

If you pay a worker $25/hour, your cost isn’t $25. Add:

Payroll taxes (7.65%)
Workers’ comp (varies widely—5-30%+)
General liability insurance allocation
Benefits if provided
Non-productive time (travel, downtime)

Real labor cost might be $35-$45/hour. Price accordingly.

Mistake 3: Letting WIP Get Stale

WIP reports only help if the estimated costs at completion are current. If you haven’t updated estimates in months, your WIP is fiction.

Mistake 4: Waiting Until Job Completion to Review

Monthly (at least) review each active job:

Are costs on track?
Is billing on schedule?
Has anything changed that affects profitability?

Catching problems at 20% complete lets you act. At 80% complete, you’re just documenting the loss.

Mistake 5: Poor Change Order Management

Change orders should be:

Documented and approved before work starts
Priced to cover cost plus margin
Tracked separately so you can see original vs. revised scope
Billed when work is complete

Unapproved changes become unpaid work.

Mistake 6: Mixing Job and Overhead Costs

If you buy general supplies that might be used across jobs, that’s overhead—not a job cost. If you buy materials specifically for a job, that’s a job cost.

Mixing them distorts both job profitability and overhead calculations.

Setting Up for Success

Chart of Accounts for Construction

Your chart of accounts should support job costing:

Income accounts by type:

Contract revenue
Change order revenue
Other income (equipment rental, material markup)

Cost of goods sold by type:

Direct labor
Materials
Subcontractors
Equipment
Other direct costs

Operating expenses (overhead):

Office salaries
Rent and utilities
Insurance - general
Vehicle expense
Professional services
Marketing
etc.

Essential Reports

Run these regularly:

Weekly:

Unbilled time and costs by job
Accounts receivable aging

Monthly:

WIP report
Job profitability by job
Job cost detail (actual vs. budget)
P&L by job (for large jobs)
Cash flow statement

Quarterly:

Full WIP review and estimate updates
Profitability by job type analysis
Overhead analysis

Software Considerations

General accounting software (QuickBooks, Xero) can do job costing, but construction-specific software offers more:

Construction-specific options:

Sage 100 Contractor
Buildertrend
CoConstruct
Foundation
Procore (for larger companies)

Key features to look for:

Robust job costing
WIP reporting
Progress billing
Change order management
Subcontractor management
Time tracking integration

Your Next Step

If you’re in construction and not doing proper job costing, start today.

This week: Pick your three largest active jobs. Compile all costs and compare to contract value. Calculate your estimated profit on each.

This month: Set up proper job costing in your accounting system. Establish processes so every cost gets tagged to a job.

Ongoing: Run WIP reports monthly. Update estimates. Catch problems early.

The contractors who know their numbers dominate their markets. Those who don’t wonder why they’re working so hard for so little.

Need help with construction bookkeeping? At Profit Path Books, we work with contractors and construction companies throughout Utah. We understand job costing, progress billing, and the unique challenges you face. Book a consultation to discuss your specific needs.