QuickBooks setup for contractors
QuickBooks for Contractors is a great, inexpensive tool for managing your construction business and gaining control over your job costs, but to use it to its fullest potential, you need to set up and use QuickBooks a little differently than you would for most. of the other companies.
First and foremost, you need to set up your items correctly because they are the heart of QuickBooks for Contractors. You must set up an item for each level of detail that you want in your labor cost reports. It can be as simple as Labor and Materials or as detailed as having hundreds of sub-categories for the services you provide. A good example of a middle ground (enough detail to manage your job costs without getting overwhelming) can be found in the sample contractor-based business file that comes with QuickBooks:
1 Plans and permits
01.1 Plans
01.2 Building permits
01.3 City & Co. licenses and fees
02 Site artwork
02.10 Demo
03 Excavation
04 Concrete
05 Masonry
06 Floor structure
07 Wall framing
08 Roof structure
09 Roof flashing
10 exterior trim and covers
11 Cladding
12 doors and trim
13 Windows and trim
14 Plumbing
15 HVAC
16 Electricity and lighting
17 Insulation
18 Interior walls
19 roofs and deck
20 Carpentry and moldings
21 Cabinets and dressers
22 Specialty
23 Floor coverings
24 painting
25 Cleaning
26 Landscaping and Paving
27 contingent
Many contractors add sub-items of labor and materials to their items, which is useful 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 your 1099.
After determining the labor costs you want to track, you are ready to add your items. Go to Lists – Item List, right-click Item and select New. Labor costs should always be set up as Service Items which, fortunately, are set by default. If you are a contractor with short-term jobs, be sure to set all of your Items of Service as two-sided, with an expense account and an income account. This does not happen automatically and is unfortunately not very intuitive. You must check next to “This service is used in assemblies or performed by a subcontractor or partner” for the expense table to be added to the setup screen. Contractors often use a cost of goods sold account called something like “work-related costs” for work-related expenses.
Builders, on the other hand, who have projects spanning several months or more, typically use a work-in-progress (WIP) or construction-in-progress (CIP) asset account because work-related costs are generally not accounted for as expenses until the project is completed. For this reason, your Service Items do not need to be double-sided. You should consult with your tax advisor or CPA before deciding which one is right for your business.
Once you’ve set up your items, you should start using them. Many of the job cost reports, such as Estimates vs. Actual data requires the use of items in all of your transactions, including invoices, checks, and credit card charges. Again, this is not very intuitive, especially since all of these types of transactions are defaulted to an Expense tab, but look closely and you will see an Item tab just to the right of the Expense tab. To get the most out of QuickBooks for Contractors, you should always use this tab. Forget the Expenses tab even exists. It is also important to assign all your transactions to a Client / Job, of course.
Lastly, if you want to get the most out of QuickBooks for Contractors every time, always enter an estimate with the level of detail you’re trying to track. You do not need to send this to your clients, although it may be very useful for you. Many users think this adds an unnecessary extra step to their daily accounting entries, but this is one of the beautiful things about QuickBooks for Contractors. Once you enter the quote, you can convert it to an invoice, a sales order, and / or a purchase order with the click of a button (all three are hidden under the “Create invoice” button on the estimate form). So instead of adding an extra step, you will often find that you will end up saving an enormous amount of data entry time down the road, plus much better and more detailed reports.