Use Items to Improve Job Costing in QuickBooks

WIP Construction AccountingConstruction and Project Related Job Costing Starts with a simple item and for many contractors job costing is a key part of the success of their construction business – how else would they know if they are actually going to make a profit or break even on the jobs they are bidding on?

For that reason job costing in QuickBooks starts with an Item and that is what drives a construction business to a profit or a loss.

However, in QuickBooks many of the terms in QuickBooks are generic and often confusing when trying to make it work in a specific industry.  For example in Construction.

Contractors, Project Managers and Subcontractors should use Items that would equal various cost codes or divisions, for example:  Division 01 – General Requirements, Division 03-Concrete, 03.20.00 Concrete Reinforcing, and the like.

The bottom line is this – your QuickBooks Item list should contain all the goods and/or services that you as a business sell to OR charge your customer for, “So how do you create one that makes sense?”

Creating an Item in QuickBooks

The second areas of confusion for many Contractors are creating of an Item or Cost Code in the Item List.  When you access the Lists menu -> choose Item List -> click the Item button -> and select New – QuickBooks presents you with a very basic New Item window where you can select the Item Type, give it a Name/Number, make it a sub-item of another item, give it a description, a rate, assign a Tax Code to the Item and associate it with an Account (typically an Income Account).

Below is a screen shot of a “basic” item setup showing the Income or Revenue side of the item:

quickbooks job costing item


Now to the “secret” in Construction Accounting is making this item work for job costing purposes, which has a VERY misleading checkbox statement – “This service is used in assemblies or is performed by a subcontractor or partner.”  Many read the first few words and think that does not apply to me.  However, it does!  SO CHECK IT!
By doing so, this allows you to turn on a powerful Construction job-costing tool. So check the option of “This service is used in assemblies or is performed by a subcontractor or partner”- and a magical purchase or cost side of the item is now displayed.
Your item window now displays both Purchase and Sales information – this procedure is commonly referred to as making an Item “double-sided”.  It is important to note that on the Purchase information side of the transaction the “Expense Account” that you select can be EITHER an actual Expense Account OR a Cost of Goods Sold Account (COGS).

Making your Items Work for You

Once you have made your item “double-sided” you then have to take a careful look at how you enter checks, bills from subcontractors, employee timesheets, etc.

When entering a bill, use the Items tab:

Job Costing Items    
When you write a direct check to a vendor that impacts job cost be sure to use the Items tab.  This is a common error among office help.

However, when purchasing office supplies or “Overhead for non-construction project related” you would use the expense tab. 

When you enter an Employee’s timesheet, select the Item in the Service Item column, so when you pay an employee the detail comes out in the check:
Job Costing Payroll 2014

All of these actions record your costs that affect “project related” expenses with this Item or Cost Code – and Job Costing is hammered out through a WIP Report.

Construction WIP Report

If you would like to learn more about how to WIP your business into shape give A2Z Office Management a call.  We are your Inland Empire Construction specialists helping construction companies find real solutions to their business challenges.