What is job costing in construction accounting?
Job costing is the process of tracking all revenues and costs associated with each individual construction project — separately from your overall business finances. It tells you the profit or loss on every job rather than just the business as a whole. Job costing tracks direct labour, materials, subcontractor costs, and equipment costs per project, compared against the estimated budget and contract value. Without job costing, you cannot identify which projects are profitable and which are losing money until it is too late to correct the problem.
What is a WIP schedule and why does a contractor need one?
A WIP (Work-in-Progress) schedule is a financial report that shows the status of every active construction project: costs incurred to date, percentage complete, revenue earned to date, and whether the project is over-billed or under-billed. It is required by most construction lenders, bonding companies, and surety providers. More importantly, it is the only way to see in real time whether a project is on track financially — not just physically. A WIP schedule prepared monthly gives you early warning of problem jobs when there is still time to act.
What accounting software is best for contractors?
QuickBooks Online Plus or Advanced is the most widely used accounting software among small to mid-size US contractors. For project management and field operations, Buildertrend and Procore are the leading platforms — both integrate with QBO. Sage 300 CRE and Viewpoint are enterprise-level options for larger contractors with more complex needs. For most contractors billing under $10M per year, QBO with Buildertrend integration provides the best combination of functionality and affordability.
What are AIA G702 and G703 billing forms?
The AIA G702 (Application and Certificate for Payment) and G703 (Schedule of Values) are standard billing forms developed by the American Institute of Architects and widely used in US commercial construction. The G703 breaks the contract into individual line items with scheduled values; the G702 is the cover sheet summarising the total billing, previous billings, retention, and the current payment request. Most commercial owners, developers, and public agencies require AIA-format billing for progress payments.
How does retention work in construction billing?
Retention (also called retainage) is a percentage — typically 5–10% — of each progress payment that the project owner withholds until the construction is substantially complete. It protects the owner against incomplete work or defects. From a bookkeeping perspective, retention billed but not yet received is a receivable that should be tracked separately from regular accounts receivable. When the project is complete and retention is released, the balance transfers to regular AR and is collected. Failing to track retention separately distorts both your receivables and your project profitability figures.
What is the percentage of completion method in construction?
The percentage of completion method (PCM) is an accounting approach for long-term contracts where revenue is recognised proportionally as work is performed, rather than all at once when the project is complete. The most common calculation is cost-to-cost: percentage complete equals total costs incurred to date divided by total estimated contract costs. If a $1M project has a $600K estimated cost and you have spent $300K, you are 50% complete and recognise 50% of contract revenue ($500K). PCM is the standard for construction under US GAAP.
How do I handle subcontractor payments in construction bookkeeping?
Subcontractor payments should be: 1) Entered as bills in your accounting software when the subcontractor invoice is received, 2) Coded to a dedicated Subcontractors expense account (not a generic labour account), 3) Assigned to the specific project in your job costing system, 4) Tracked throughout the year for 1099-NEC reporting — any subcontractor paid $600 or more in a calendar year must receive a 1099-NEC by January 31 of the following year. Most accounting software (QBO, Xero) has built-in 1099 tracking if you flag subcontractors as 1099 vendors.