Bookkeeping for Contractors: Manage Job Costs.

Contractors balance bids, crews, and schedules every day—but clear books keep the business running. Bookkeeping for contractors means tracking job costs, payroll, and invoices so every project stays profitable and on time.

At Veteran Bookkeeping LLC, we help builders and trades manage cash flow with simple, repeatable systems. Our job-cost reports and reconciliations show where each dollar goes, helping you catch overruns early and plan the next bid with confidence.

In this guide, you’ll learn how to organize your chart of accounts, use job-costing reports, and choose tools that connect your field data to your finances. These steps bring clarity, control, and peace of mind to your contracting work.

Key Takeaways

• Use a project-focused setup to track costs and profits for each job.

• Automate payroll, invoicing, and reconciliations to save time and reduce errors.

• Pick tools and processes that give timely financial reports for smarter decisions.

Understanding Bookkeeping for Contractors

You need clear records that tie every dollar to a job, show profit by project, and keep payroll and taxes accurate. The next parts explain how job costing, cost codes, and contract-specific rules change bookkeeping for construction work.

Why Accurate Job Costing Matters

Accurate job costing protects thin construction margins. The U.S. Small Business Administration says small firms that track labor and materials per project understand true profitability and improve bidding accuracy. Clear costs also support funding and insurance claims.

The SBA advises contractors to keep separate records for each project and review job reports monthly to spot cash issues early. That discipline turns bookkeeping from a task into a management tool.

What Makes Contractor Bookkeeping Unique

Contractor bookkeeping tracks finances by project, not just by company. Assign costs to jobs using job costing and cost codes to see labor, materials, equipment, and subcontractor costs per project. This helps you spot overruns early and bill customers correctly.

Handle retention, progress billing, and deposits. Retention holds money until punchlist items finish. Progress billing and change orders affect revenue timing and require careful entry. Deposits and retainage impact cash flow and should be recorded as liabilities until earned.

Use software that supports project items and WIP reports. Accurate time tracking and purchase coding are key. Missing a cost code or labor hour can shift a project’s profit and make your bids inaccurate.

Construction Bookkeeping vs. Other Industries

Construction bookkeeping focuses on long-term projects and revenue recognition tied to progress. Unlike retail, where transactions are typically short-term, you manage multi-month projects.

This involves using WIP reporting and methods like Percentage of Completion or Completed Contract to match revenue and costs to project progress. Manage complex subcontractor payments and certified payroll in some projects.

Sales tax rules, bonding, and retainage add layers that typical service businesses don’t face. Bank reconciliations and A/R collections often revolve around milestone invoices rather than quick sales.

Because projects cross accounting periods, you’ll need job-level reports: job profitability, committed costs, and forecasted cost-to-complete. These let you compare actuals to estimates and adjust schedules or budgets before overruns grow.

Key Terms in Construction Accounting

• Job Costing: Tracking all costs to a specific project. Use cost codes for labor, materials, equipment, subcontractors, and overhead.

• Cost Codes: Standardized codes you apply to purchases and payroll to keep jobs comparable. They make reporting and estimating faster.

• Work-in-Progress (WIP): A report showing revenue recognized, costs incurred, and percent complete for each job.

• Retainage: Money held back until project completion. Record as a liability until earned.

• Percentage of Completion: Revenue method that recognizes income as work progresses. Use measured progress or cost-to-cost calculations.

• Change Order: An approved contract change that modifies price or scope. Track separately so contracts and accounting match.

Keep these terms on hand when you set up your chart of accounts and train staff. Clear definitions reduce miscodes and make your job-level reports reliable.

Setting Up a Contractor Bookkeeping System

Set up your records to track job costs, keep cash flowing, and avoid tax problems. Focus on software that supports job costing.

Keep personal money out of business accounts, choose a bank account that matches how you get paid, pay vendors, and build a chart of accounts that maps to materials, labor, and overhead.

Choosing the Right Bookkeeping System

Pick a cloud accounting that offers job costing, invoicing, and bank feeds. QuickBooks Online with contractor features is common, but consider Xero or construction add-ons if you need more project-level reporting.

Make sure the system lets you create a job for each project and tag transactions to that job. Set up automatic bank feeds to reduce manual entry and create rules to auto-categorize repeated transactions.

Use mobile receipt upload to capture material invoices and subcontractor bills on the jobsite. If you hire a virtual bookkeeper, confirm they know your software and can train you on running job profitability reports.

Separating Personal and Business Finances

Open separate accounts and stop using personal cards for business buys. Mixing accounts makes it hard to track tax-deductible expenses and to prove costs for each job.

Pay yourself a regular payroll or owner draw rather than transferring random amounts. Keep a checklist: receipts for materials, signed subcontractor invoices with W-9s, and bank statements. That paperwork keeps audits simple and helps you see true job margins.

Selecting a Business Bank Account

Choose an account with low fees, easy online access, and a debit card for jobsite purchases. Look for an account that supports multiple sub-accounts or online tools for tracking deposits by job.

Enable bank feeds in your bookkeeping system and link a business credit card used only for supplies and fuel. If you take progress payments, pick a bank that offers fast payment processing and mobile deposit for checks from clients.

Compare monthly fees, transaction limits, and integrated payroll or merchant services.

Building a Chart of Accounts for Construction

Create accounts that match how you actually spend and earn on jobs: income categories for residential vs. commercial, expense accounts for materials, subcontractors, equipment rental, and job-site permits.

Add specific cost-of-goods-sold accounts tied to each job and separate overhead accounts for office rent, insurance, and vehicle expenses.

Use clear, short account names and a consistent numbering system so you can run reports quickly. Review and simplify the chart quarterly to remove unused accounts and keep reports readable.

Core Processes in Contractor Bookkeeping

Set up clear steps to track costs, pay subs on time, bill for progress, and hold retainage without losing cash flow. Each process below shows what to record, who does it, and which reports to run.

Job Costing and Cost Tracking

Set up each project as a separate job in your accounting system. Track labor hours, materials, equipment rental, and overhead to the job level. Use a chart of accounts that maps to job categories (labor, materials, subcontractors, equipment, permits).

Capture costs daily or weekly. Enter timesheets for crew, match vendor invoices to purchase orders, and log material deliveries to the job. Reconcile job receipts to the job ledger so you can compare actual costs to budgeted line items.

Run a job-cost report and a work-in-progress (WIP) schedule weekly. Look at cost-to-complete and gross margin by job. Use these numbers to adjust bids, order materials, or shift labor.

Managing Subcontractor Payments

Create a vendor record for each subcontractor with tax ID and contract terms. Record subcontracts as committed costs when you sign the agreement. Track lien waivers and insurance certificates before you pay.

Pay subs based on approved invoices and progress milestones. Use a three-way match: contract, invoice, and job log. Keep a clear AP aging report and a subcontractor payment register to avoid duplicate payments and to manage cash flow.

Keep retention and final payment rules visible on each PO. Attach lien waivers to the paid invoice in your system. This helps during audits and when you close a job.

Change Orders and Progress Billing

Document every change order in writing with scope, price, and approval signature. Enter approved change orders into the job budget immediately. Update forecasts and your WIP report to reflect the new totals.

Issue progress invoices that list the original contract, approved changes, previous billings, and the current amount due. Match progress billing to percent complete or measured deliverables. Keep backup documents—timesheets, delivery tickets, and approved change order forms—with each invoice.

Reconcile billed revenue to recognized revenue using your chosen accounting method (percentage of completion or completed contract). This prevents overbilling or understating income.

Retainage and Retainage Tracking

Record retainage as a receivable on your invoices and as a payable when you hold back sub pay. Use separate retainage accounts in your general ledger so you can report retained amounts by job.

Track retainage balances per subcontractor and per client. Create a retainage aging schedule that shows due dates for release and any conditions for release. Monitor cash flow so releasing retainage doesn’t leave you short for punch-list fixes.

When retainage is released, record the receipt and clear the retainage receivable. Attach the client’s release paperwork and the subcontractor’s lien waiver to the final job file. This keeps the closeout clean and audit-ready.

Accounting Methods and Financial Reporting

This section explains how to pick an accounting method, how to report revenue and job progress, and how to track overhead and cost overruns so you can see true job margins and cash needs.

Cash vs. Accrual Accounting

Choose cash or accrual to match tax rules and how you want to measure performance.
Cash basis records income when you receive payment and expenses when you pay bills. It keeps bookkeeping simple and shows real cash on hand.

But it can hide how profitable long jobs are because revenue waits until payments arrive. Accrual (including CIP—construction in progress) records revenue when you earn it and expenses when you incur them.

This method gives an accurate view of job profit and liabilities during long-term contracts. Use accrual if you need reliable project profit data or if lenders, auditors, or tax law requires it. Track receivables, payables, and CIP accounts closely to avoid misstated margins.

Revenue Recognition for Contractors

Pick a consistent recognition method that fits your contracts and tax rules. Common choices are percentage-of-completion and completed-contract methods. Percentage-of-completion recognizes revenue based on job progress (cost-to-cost or milestones).

It shows revenue as you work and prevents revenue spikes at final billing. Use it when you can reliably measure progress and costs. Completed-contract delays recognition until the job finishes. It can simplify taxes in the short term but distorts ongoing performance.

Document the method in your accounting policy and apply it across similar contracts. For public or large commercial jobs, follow any required standards and keep detailed work logs, change orders, and approved draws to support recognized amounts.

Work-in-Progress (WIP) Reporting

WIP reports keep track of project status, recognized revenue, and unrealized profit. Build a WIP report that lists contract value, costs to date, billings, retention, and percent complete. Update it monthly or with major draws.

Use cost-to-cost or units-of-work to compute percent complete, and include change orders and claims in the calculations. A good WIP report flags projects where costs exceed budgets or billings lag progress.

Reconcile WIP to your general ledger CIP accounts and accounts receivable. Present WIP lines for each job so you can spot margin erosion early and decide whether to adjust billing, reprice future bids, or cut costs.

Overhead Allocation and Overruns

Allocate overhead so each job shows a fair share of indirect costs. Common allocation bases are direct labor hours, labor dollars, or machine hours. Choose one and apply it consistently. Record overhead pools (office rent, insurance, management salaries) and divide them across jobs each period.

Track overruns separately from normal job costs. Create a variance log that captures cause: scope change, estimating error, or productivity loss.

When an overrun occurs, document corrective actions—change orders, crew adjustments, or subcontractor swaps. Review allocations and estimating assumptions after a run of overruns to prevent repeating the same mistakes.

Bookkeeping Software and Tools for Contractors

Pick tools that track job costs, bank reconciliations, and retainage. Use software that links field data, vendor bills, and payroll, so you see true project margins and cash flow quickly.

Choosing Construction Accounting Software

Select software that treats each job as a separate profit center. Look for job costing, WIP (work in progress) reporting, and built-in bank reconciliation to match deposits and payments to jobs without spreadsheets.

Make sure the system supports progress billing, retainage, and AIA-style invoices if you handle commercial projects. Decide between cloud and desktop options. Choose desktop software like QuickBooks Desktop Contractor or Sage 100 Contractor if you need offline access and heavy customization.

For field access and integrations, go with a cloud solution that syncs with mobile apps and timecards. Check for integrations and add-ons. Use document-capture tools like Hubdoc to push receipts and invoices into your accounting software.

Confirm support for payroll, payroll tax filing, and multi-entity management if you operate multiple companies.

Popular Software Options

QuickBooks Desktop Contractor works well for small to mid-size trade contractors who want familiar accounting with local install options and strong job costing. Pair it with document capture and a solid bank reconciliation routine for best results.

Sage 100 Contractor fits contractors seeking an on-premise system with advanced construction features like equipment tracking and job costing. It handles complex billing and multi-company setups efficiently.

Cloud platforms like Foundation, Acumatica, or Sage Intacct Construction offer scalable solutions and real-time dashboards. Project management platforms such as Buildertrend connect schedules, change orders, and invoicing directly to accounting for seamless field-to-office workflows.

Use apps like Hubdoc to capture bills and receipts, reducing manual entry and improving accounts payable accuracy. Many contractors use a project-management app with their accounting software to keep job files centralized.

Integrating Project Management Tools

Connect project management apps to your accounting software so estimates, change orders, and time entries flow automatically into job cost ledgers. This integration prevents duplicate entries and keeps costs tied to the right codes.

Buildertrend and similar tools allow you to push invoices and change orders directly into your accounting system. Check that the integration syncs line-level detail to maintain accurate bank reconciliation and job reports.

Establish clear sync rules. Map cost types, tax treatments, and customer records before starting. Train your team to use a single timekeeping method so payroll and labor costs import smoothly.

Use API or native integrations instead of CSV exports when possible. These methods reduce delays and keep your financials current for weekly cash forecasts and progress billing.

Automating Invoicing and Documentation

Automate recurring invoices and retainage tracking to maintain steady cash flow. Use progress-billing templates for various contract types so you can send AIA or percentage-of-completion invoices quickly.

Capture vendor invoices and receipts with document-capture tools. The app extracts vendor name, date, and amounts, then posts them to your accounts payable workflow for approval.

Set up automated reminders and electronic delivery for client invoices. Send invoices by email with a pay link to speed up collections. Reconcile payments weekly to keep your bank reconciliation up to date and ensure payments apply to the correct jobs.

Maintain a digital filing system for liens, certificates of insurance, and change orders. Attach these documents to bills and invoices within your accounting software to keep your audit trail organized and easy to access.

Best Practices and Common Mistakes

Control cash flow, records, and taxes closely. Reconcile bank accounts regularly, track bills and invoices, and follow payroll and tax rules to avoid penalties.

Bank Reconciliation and Recordkeeping

Reconcile your bank account weekly or at least monthly. Match each bank entry to a recorded transaction in your accounting software. Identify missing deposits, duplicate payments, and uncleared checks.

Keep a running list of outstanding items expected to clear next month. Use consistent naming for jobs and accounts to locate transactions quickly when preparing profit and loss statements. Save receipts as PDFs or photos and attach them to each transaction for faster audits and project reviews.

If a balance doesn’t match, trace transactions back to source documents like invoices, vendor statements, or check images. Fix small errors promptly to prevent bigger problems.

Managing Accounts Payable and Receivable

Set clear invoice terms and follow them. Send invoices upon job completion or at milestone dates, and note retainage amounts on each invoice if a general contractor withholds 5–10%.

Track accounts receivable by aging buckets: 0–30, 31–60, 61–90, and 90+ days. Prioritize collection calls or lien filings for invoices over 60 days. For accounts payable, enter bills immediately and schedule payments to maintain vendor relationships and healthy cash flow.

Automate recurring bills and invoice reminders. Use templates that include project codes, change orders, and retainage so your records align with profit and loss reports. Record any 1099-NEC contractors before year-end to avoid last-minute issues.

Avoiding Common Bookkeeping Mistakes

Keep personal and business accounts separate. Use a business bank account for all job income and expenses to keep your books clean and simplify taxes. Record small expenses, like fuel and job-site supplies, as they occur.

Promptly reconciling credit card statements and bank accounts helps catch errors quickly. Complete bookkeeping tasks regularly. Delays lead to missed invoices, incorrect job costs, and poor decisions.

Review your profit and loss statement monthly to catch falling margins or rising labor costs. Common mistakes include missing retainage, misfiled receipts, and unrecorded change orders, which can reduce profits unnoticed.

Certified Payroll and Tax Compliance

If your jobs require certified payroll, collect and store payroll records by project. Record hours, wage rates, fringe benefits, and deductions per worker. Organize certified payroll reports by pay period and job for easy access.

Set aside tax money from each pay period and record contractor payments for Form 1099-NEC before the year's end. Maintain payroll tax deposit schedules and file quarterly payroll returns on time.

Use checklists and calendar reminders to meet deadlines and avoid fines or delayed project payments.

Strong Books Keep Projects on Track

Accurate construction books do more than satisfy the tax code—they show you which jobs earn profit and which need attention. Reliable numbers help you bid smarter and avoid cash-flow surprises.

At Veteran Bookkeeping LLC, we help contractors build systems that track every job cost and deliver clear reports month after month. Our goal is to make your financials as steady as your work.

If you’re ready to see where your projects really stand, schedule a short consultation to review your current books and next steps.

Frequently Asked Questions

This section provides clear, practical answers you can use right away. It covers daily workflows, software choices, training options, hiring tips, Excel setups, and accounting methods.

What's the easiest way to manage bookkeeping for my contracting business?

Track each project as a separate job and record labor, materials, equipment, and subcontractor costs individually. Reconcile your bank and credit card accounts weekly to catch errors quickly.

Automate receipts and invoicing where possible. Use mobile apps to capture receipts on-site and match them to jobs later.

Can you recommend a good accounting software tailored to contractors?

QuickBooks Desktop Contractor Edition offers strong job costing and reporting for many contractors. QuickBooks is widely used and supports payroll and progress billing.

Buildertrend combines project management with financials for contractors seeking integrated workflows. For simple online access and add-ons, consider cloud options like Xero.

Are there any specialized bookkeeping courses available for contractors?

Find courses that cover job costing, WIP reporting, and construction payroll. Community colleges and trade schools often offer short programs focused on construction accounting.

Look for online courses that teach QuickBooks for contractors and construction-specific accounting rules. Choose courses with hands-on software practice.

What are some tips for finding reliable construction bookkeeping services nearby?

Ask peers for referrals and check reviews for firms that offer construction bookkeeping. Confirm the provider understands job costing, retention tracking, and percentage-of-completion accounting.

Request a sample WIP report and client references before hiring. Confirm pricing, deliverables, and whether they handle payroll and subcontractor 1099s.