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How should I set up my chart of accounts for a construction business?

A generic chart of accounts doesn’t work for construction. If you’re using the default QuickBooks template, you’re lumping costs together in ways that hide where your money actually goes. The structure needs to match how contractors actually run jobs, which means supporting job costing at the account level and separating direct costs from overhead.

Start with income. Don’t use a single “sales” account. Break it into contract revenue for your base work, change order revenue for approved scope additions, and retainage released for amounts held back and later paid. You may also want a separate account for service or time-and-materials work if that’s part of your business. Tracking these separately shows you how much revenue comes from original contracts versus changes, which tells you something real about estimating accuracy and project management.

Cost of goods sold is where most construction charts of accounts fall apart. Create separate COGS accounts for direct labor, materials, subcontractors, equipment costs (rental and owned equipment allocated to jobs), and permits and fees. Some contractors add an “other job costs” bucket for things like dumpsters, porta-potties, and job site supplies. The goal is that every dollar spent on a specific job flows to a direct cost account coded to that job, not to a general expense category.

Overhead lives in operating expenses, not COGS. Office rent, admin salaries, general insurance, vehicle costs for your personal truck, marketing, software subscriptions, and accounting fees all belong here. Mixing these with direct job costs destroys your gross margin numbers and makes it impossible to tell which jobs made money.

On the balance sheet, add accounts that construction requires. Retainage receivable tracks amounts held back by customers until project completion. Retainage payable tracks amounts you’re holding back from subs. Customer deposits sits as a liability until the work is performed. Work in progress accounts handle over and under billings if you’re running percentage-of-completion. These accounts don’t exist in most default templates but they matter for accurate financials.

Keep the detail level useful, not excessive. You don’t need 40 material subaccounts. Five to seven direct cost categories that every transaction can be coded to consistently is better than a hundred that nobody uses correctly. The real detail lives in your job costing reports, which pull from job assignments on each transaction, not from how many subaccounts you have.

Set it up right once and the books actually tell you something. Set it up wrong and you’ll be looking at financials that are technically accurate but operationally useless. If you’re starting a construction business or trying to fix a chart of accounts that’s grown messy, bookkeeping services in Pasadena built around construction accounting can save you from rebuilding it later.

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More Questions

How do HVAC contractors track service calls vs installation jobs in their books?

Set up separate income accounts for service revenue and installation revenue so you can see the mix at a glance. Use job costing for installations where materials, labor, and subs add up over days or weeks. Keep service call tracking simple with flat-rate invoices and category-level expense coding.

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What are the most common bookkeeping mistakes construction companies make?

The most common construction bookkeeping mistakes are mixing personal and business expenses, not separating job costs from overhead, mishandling retainage, failing to reconcile subcontractor payments to 1099s, and not monitoring work-in-progress against budget.

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What are the best tax deductions for plumbers in California?

Plumbers can deduct tools, vehicle expenses, licensing, insurance, uniforms, safety gear, continuing education, phone costs, and home office use. Larger equipment purchases like drain cameras and pipe threaders often qualify for Section 179 immediate expensing.

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What is progress billing and how does it work for general contractors?

Progress billing means invoicing the owner in stages based on how much of the work you've completed, not at project end. Each pay application breaks down work completed to date, retainage withheld, and the net amount due for that period.

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Do I need a bookkeeper if I'm a small remodeling contractor in Pasadena?

Even a one or two-person remodeling operation benefits from organized books. Job costing, permit fees, material purchases, and sub payments add up fast, and without tracking them per project you won't know which jobs actually make money.

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Should my construction company use cash or accrual accounting?

Contractors under $29M in average gross receipts can use cash basis for taxes, which is simpler but hides project profitability. Larger contractors must use percentage-of-completion. Most serious construction companies run accrual internally regardless, because bonding agents and banks expect it.

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