Accurate job costing is one of the most critical tasks for managing job-based business like construction companies, professional services firms, and even nonprofits that are awarded grants. Many owners put it off because it seems too complicated or time-consuming. But if you’re serious about helping your business grow and prosper, it’ll help you:
– Analyze how each of your jobs us doing financially
– Identify problem jobs as early as possible
– Identify jobs that weren’t as profitable as expected
– Create better estimates for future jobs
Luckily, QuickBooks is an inexpensive program that can do powerful job costing with the data you’re already entering – as long as you set it up and use it correctly.
The first step to setting up QuickBooks for job costing is to set your preferences (Edit > Preferences > Company Preferences)
1. Go to Jobs & Estimates and check the box next to “Do you create estimates”. You might also want to check the box next to “Do you do progress invoicing”.
2. If you use QuickBooks for payroll, and every business doing job costing should, go to Payroll & Employees and check the box next to “Job costing, class and item tracking for paycheck expenses”
3. If you use QuickBooks for payroll, go to Time & Expenses and check the box next to “Do you track time”. If you do time & material billing, you should also check “Create invoices from a list of time and expenses”.
The second step is to setup your customer:jobs and use them on every transaction.
1. Go to the Customer Center and click on the New Customer & Job button.
2. If you are using Contractors edition, you might also want to create a customer called Overhead or Administrative for non-job expenses, so you can use the “Expenses Not Assigned to Jobs” report (only found in the contractors edition) to make sure you didn’t accidentally leave off a customer:job. If you are using classes, you might want to consider doing the same thing so you can use the Profit & Loss Unclassified report to make sure you didn’t accidentally leave off a class.
The third step is to setup items and use them on every transaction.
1. Go to Lists > Item List, click on the List button, and select New.
2. Add a new service item for every job phase you want to job cost. For subcontractors, this could be as simple as Labor and Materials. For general contractors, it could be quite lenghty: plans, site work, excavation, concrete, masonry, framing, etc. In this case, you might want to add sub-items for Labor and Materials to your items if you want to track those costs separately. This also makes it easier to report only the Labor portion of a subcontractor’s invoice on their 1099.
3. If you are a contractor with short-term jobs make sure to set up all your Service Items as two-sided, with both an expense and an income account. This doesn’t occur automatically and unfortunately it isn’t very intuitive. You need to put a check next to “This service is used in assemblies or is performed by a subcontractor or partner” for the expense box to be added to the setup screen. Contractors often use a cost of goods sold account called something like “job related costs” for job-related expenses.
4. Builders and many professional service firms have projects that span several months or more generally use a work in progress (WIP) or construction in progress (CIP) asset account because job related costs aren’t usually expensed until the project is completed. In this case, they should map the expense account to their WIP or CIP asset account.
5. Depending on your circumstances, there are also several Other Charge items you should set up. These don’t need to be two-sided:
– If you use WIP or CIP accounts, you should setup two items: (1) Transfer out of WIP – with WIP as the account and note in the description that the amount should be positive, and (2) Transfer into COS – with COS as the account and note in the description that the amount should be negative
– If you accept customer deposits or retainers, you should setup an item mapped to a current liability account. For better tracking, you should consider setting up a separate current liability account just for deposits.
– If you have customer retention or retainage, you should setup an item mapped to an accounts receivable account and a negative for the Amount (for instance, -10% if your retainage is 10%). For better tracking, you should consider setting up a separate accounts receivable account just for retainage.
This is the first of a four-part series about how to use QuickBooks for job costing. Intuit, the creators of QuickBooks, has also asked me to host a free Small Business Town Hall series covering the same topics. This is your chance to get your job costing questions answered live. You can get more information here: https://www.quickbookserrorsupport.com/intuit-merchant-service
Ruth Perryman is the president of QuickBooks Error Support. She is a Certified Advanced Quickbooks ProAdvisor and an Intuit Solutions Provider, with over 19 years of industry experience including 5 years as a Chief Financial Officer. She has been working with Quickbooks since 1996, and specializes in QuickBooks Enterprise and POS installations and troubleshooting. She also provides virtual controller and CFO services.