What is job costing in construction?

Job costing assigns every cost — materials, labor, subcontractors, equipment and permits — to the specific job that incurred it, so each job carries its own profit and loss statement. Company-level reporting cannot do this: it tells you the business made money without telling you which jobs made it and which ones spent it.

Why does a profitable year feel tight on cash?

Unbilled change orders, retainage and cost landing in the wrong period are the usual answers. Change-order costs hit the accounts while the matching revenue is never billed at all, and retainage is revenue recognized months before the customer releases the cash.

How do you allocate labor to a job?

Crews record hours against a job code daily, and those hours are costed at a fully loaded rate. The loaded rate includes the wage plus employer payroll taxes, workers' compensation and any vehicle or equipment cost carried per crew hour. Using the bare wage understates every job by a consistent and material amount.

Does a contractor have to use percentage-of-completion?

It depends on contract length and company size, and the test sits in the tax code rather than in the bookkeeping. Long-term contracts generally use percentage-of-completion, but IRC §460 provides an exception for smaller contractors below a gross receipts threshold that is indexed annually — check the figure for the year in question with the contractor's tax preparer rather than assuming last year's applies.

What software handles job costing for a remodeler?

QuickBooks Online Projects is usually enough at six crews, with receipt capture through Dext and hours entered daily against job codes. Purpose-built construction platforms add estimating, scheduling and selections, but none of them fix the underlying problem, which is that costs have to be coded to a job at the moment they are entered.

How often should per-job margin be reviewed?

Weekly, and only the variances. A job report read once a year is a post-mortem. Read weekly, it is the only chance to reprice, bill a variation or stop the bleeding while the job is still open.

Construction & trades · 🇺🇸 United StatesScenario

How job costing works in a residential contracting business

Job costing works when every material purchase and every crew hour is coded to a job at the moment it is recorded, not reallocated at month-end, because a contractor quoting from an assumed margin has no way to test whether that margin exists. This is an illustrative example set in a remodeler running six crews with twenty to thirty jobs open at a time.

Ask how we'd handle this

Scenario — an illustrative example of how Salt approaches this problem. Not a description of a specific client engagement.

The business shape it describes: US residential contractor, 6 crews, 20–30 jobs live.

Scenario covers: Bookkeeping with job costing and per-job margin reporting
Software it assumes: QuickBooks Online · Dext
Jurisdiction: United States
Sector: Construction & trades

The setup

The contractor runs six crews and has twenty to thirty jobs open at any point. New work is quoted off a standard gross margin assumption.
Profitability is measured once a year, at company level, when the tax return is prepared.
Cash is tight in a year the profit and loss statement calls good.

What usually turns out to be wrong

Material purchases are coded to a cost of goods account but not to a job, so no individual job has a true cost.
Crew time is captured for payroll and never against a job. Labor cost per job is an estimate made after the fact.
Change orders get built and frequently never invoiced. The work is done, the cost lands, the revenue does not.
Subcontractor invoices arrive weeks after the work and post to whichever month they are entered, which moves cost off the job it belongs to.
Retainage held by the customer is treated as a collection problem rather than as a receivable with its own release terms.

How this would be worked

A job list would be set up in QuickBooks Online Projects, one project per contract, with approved change orders carried as their own lines rather than absorbed into the original job.
Purchasing would change before reporting does. Every material receipt would be captured through Dext and coded to a job at entry, and a receipt with no job goes back to whoever bought it.
Crew hours would be entered against a job daily and costed at a fully loaded rate that includes employer payroll taxes, workers' compensation and vehicle cost, so the labor figure on the job report is what the crew actually costs.
A change-order log would be tied to invoicing: signed variation, cost, price, invoice number. Any entry with no invoice number against it becomes the weekly exception report.
Committed cost would be tracked from open purchase orders and subcontract values, so a job's exposure is visible before the invoices arrive.
Per-job margin would be reported weekly against the quoted margin, and the variance list rather than the total is what gets read.

Why we'd be the right fit

Job costing fails at data entry, not in the reporting. Every material purchase and every crew hour has to land on a job as it happens, or the per-job numbers are worth nothing.
It also needs someone prepared to keep producing a margin figure that contradicts the quoting assumption the business has run on for years.
The reporting is bookkeeping and controller work. Choosing a method of accounting for long-term contracts is a tax question and stays with the contractor's own tax preparer.

What the business would be able to do

The contractor would be able to price new work from the margin the last twenty jobs actually produced rather than from the assumption in the estimating template.
Approved change orders would sit visibly unbilled until an invoice number is recorded against them.
A job going wrong would show as a variance in the week it goes wrong, while there is still scope to act on it.

What we'd flag

Getting crews to log time against jobs is the part that fails. It changes how a foreman ends the day, and until it holds, the labor figures are not reliable enough to price from. Plan for weeks of reinforcement rather than a memo.

Answers

How job costing works in a residential contracting business

Where this applies

BookkeepingService ControllerService All services in United StatesUS GAAP More scenarios42 illustrative, labelled examples

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