QuickBooks, while a great software program, is a “generic” accounting program. Even though there is a “Contractor version”, it was designed to meet the needs of all types of contractors – from the home handyman to a general contractor. Only through the use of QuickBooks integrated add-ons will you find that it then becomes a viable substitute for the more costly construction specific accounting programs available.
Welcome to Tuesday Training!
Tuesday Training is a new feature here on the QuickBooks for Contractors blog. While everyday focuses on training of one sort or another, Tuesday’s are dedicated to more in-depth training.
We’ll teach you the things you need to know about using QuickBooks, that you won’t find in the QuickBooks Help file, in order to successfully run your construction business and obtain accurate job costing reports; from eBooks, live webinars, and recorded training sessions.
You’ll find high-quality (budget friendly) training without having to leave the comfort of your home or office.
Choosing QuickBooks and QuickBooks Add-Ons for Your Construction Business
Whether you currently use QuickBooks or are thinking of using QuickBooks for your construction accounting package you need to be aware that QuickBooks, while a great software program, is a “generic” accounting program and will not do everything that you may need it to for your business by itself, unlike more expensive construction specific software.
If you are like most contractors, you probably do not think of yourself as a “computer hardware/software expert’. In fact, when faced with the thought of purchasing new computers and/or software to automate critical, time consuming tasks within your business, you end up feeling overwhelmed. Many contractors end up turning the project over to someone else. This unfortunately, is one of the major reasons that this type of project fails.
Download the complete article to find how you can make your project succeed!
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A QuickBooks for contractors tip about receiving and applying joint checks from a general contractor to pay a lower tier subcontractor or material supplier for work completed or materials on a construction project.
Quite frequently, in the construction industry, a contractor will receive a joint check from a General Contractor to pay their lower tier subcontractors or material suppliers for work completed and/or materials delivered to the construction project’s job site.
Unlike many high-end construction accounting packages, QuickBooks doesn’t have a way to handle this automatically — or easily.
This QuickBooks for contractors tip provides what we consider to be a best practice when a situation like this arises.
Problem:
Your company, Sam Subcontracting, received a $10,000.00 joint check from Joe’s General Contracting; which is made out to both your company AND O’Fallen Gravel {your Vendor/Material Supplier} who delivered sand, gravel, and crushed rock to a jobsite. The $10,000.00 was included in your most recent invoice totaling $45,000.00 that you sent to Joe’s General Contracting AND you have a $10,000.00 invoice from O’Fallen Gravel in Accounts Payable. Amy, your bookkeeper, isn’t sure how to correctly receive this payment against your own Accounts Receivable AND correctly apply this payment to your Accounts Payable.
Solution:
When Amy is ready to receive the payment against the invoice issued to Joe’s General Contracting AND record the payment to O’Fallen Gravel, she should do the following:
- Verify that she has a special “Clearing” Account in her QuickBooks Chart of Accounts that is a “Bank” type – if one does not exist she should create it by going to the Lists menu -> Chart of Accounts -> Account -> New -> Type = Bank -> Continue -> Account Name = Clearing -> Save & Close.
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- Click the Receive Payment icon on the QuickBooks Home Page – OR – from the Customers menu -> choose Receive Payments. Received From = Joe’s General Contracting -> Amount = $10,000.00 -> Date = Current Date -> Pmt. Method = Check -> Check # = Check Number -> Memo = Joint Check issued to O’Fallen Gravel -> Deposit to = CLEARING ACCOUNT. Click Save & Close.
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- The balance in the Clearing Account should now be $10,000.00.
- Click the Pay Bills icon on the QuickBooks Home Page – OR – from the Vendors menu -> choose Pay Bills. Choose the O’Fallen Gravel bill -> Method = Check -> Select Assign check number -> Account = CLEARING ACCOUNT.
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- Click Pay Selected Bills.
- In the Assign Check Numbers window – enter the number of the check that you received from Joe’s General Contracting.
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- Click OK
- The balance in the Clearing Account should be 0.
Make sure that you also have the proper Lien Waive and Release forms.
We hope you found this QuickBooks tip to be useful — if so please take a moment to leave a comment, share it on your favorite social media site or click the +1 button below.
If you think that job costing is all it takes to have a good construction accounting system – think again!
You need a firm handle on your costs and QuickBooks when properly setup and used does a very good job, however, you also need to be able to control those costs.
In almost every other industry, the Accounts Payable function is strictly a clerical function, found only in the accounting department.
Most construction managers know that subcontract and purchase order control can only be achieved with a good accounts payable system in place. As much as 75% of your Accounting Department’s time is spent on the Accounts Payable process. Receiving and paying invoices is a constant, on-going process. Therefore, it had better be good.
The problems of having to handle so many accounts with so many different people over extended periods of time can all be solved by how well you utilize the functionality found in the various pieces of the QuickBooks Vendor Center.
- Using the “Enter Bills” in conjunction with the “Pay Bills” functions reduces costs by preventing double payments.
- By setting up and using “Terms” you can improve profit by watching for available discounts.
- By using the Purchase Order function for tracking subcontracts and materials purchases you can avoid over payments.
- You can even setup and utilize a system to track the expiration dates of subcontractor Workers Comp and General Liability policies.
- It can even help you when you talk to your bonding company.
When you utilize the Enter Bills function and setup up Terms, QuickBooks then recognizes that you do not pay all your bills the same way.
- There are vendor invoices that need to be paid by some due date in order to take advantage of discounts.
- Other bills are paid when you are paid for a particular job.
Naturally tracking the discounts and retainages for each can be a time consuming job.
Whom do you owe money to? How much do you owe them? When do you have to pay them? These basic questions have to be answered every day. The QuickBooks A/P Aging Detail and Unpaid Bills Detail Reports are ready with the answers. Since the Enter Bills form asks for a due date, you can input any date, and use it for cash forecasting, or for a final checklist before you run checks.
Features and Functions of a good Accounts Payable system when using QuickBooks:
- Using the “Enter Bills” function allows for immediate posting of invoices
- Using the “Pay Bills” function allows you to take advantage of discounts and provides immediate posting of payments.
- Maintains vendor and invoice numbers to guard against double payments.
- Automatically calculates discounts.
- Track Retainage withheld from subcontractor payments.
- Track Workers Compensation and General Liability Insurance expiration dates for subcontractors.
- Print Joint Checks, 1099’s, and Lien Releases.
- Set up your own “cost” codes to track expenses and/or cost of goods sold expenditures.
- Assign vendor costs to specific cost codes and jobs.
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Request our FREE eBook – “QuickBooks Tips & Techniques – Setting Up & Tracking Subcontractors Worker’s Comp Insurance”.This eBook will provide you with complete instructions for setting up and maintaining a system for tracking expiration dates of Subcontractors Worker’s Comp AND General Liability Insurance. |
Tracking costs throughout a construction project is possibly the most important aspect of completing a project. This may seem like a simple function, but in a construction project, different entities need different financial information, and being able to track finances in real time saves a lot of work (and costs) later on.
Let’s look at some of the costs and how accounting software fills the need.
Construction accounting software makes it easier to keep track of direct material purchases. Direct materials consist of basic building supplies like drywall, wire, pipes, and wood. Essentially, direct materials are everything purchased for a project. Sometimes these materials are purchased tax-free or with a builder’s discount. These items are generally recorded separate of labor costs to ensure accurate profit and loss statements.
The cost of labor has to be tracked apart from direct material costs. Labor costs can include payroll, contractor fees and sub-contractor fees. For employees, tax withholdings need to be kept track of as well as health insurance, payroll deductions, retirement withholdings, etc. Subcontractors are paid in a lump sum with no taxes withheld. So, these need to be kept track of separately. Accounting software has built in features that allow a bookkeeper or business owner to keep track of all of these things. It may even allow you to export information to a payroll service.
Subcontractors and contract workers are a little different as companies are not required to track or even take withholding, but accounting software should also have a feature to allow generation of 1099 forms for work without withholding. As with direct labor or any ledger, this software allows easy review and retrieval of information when the project is finished and again when taxes must be filed.
Construction businesses must keep track of services in a separate category. This need is reflected in most construction management software. Services differ from direct labor because workers performing the work are actually in the employ of another business. For example, workers sent to repair rented equipment or refuel equipment might fall under service expenses. These expenses need to be recorded on their own as a direct expense.
Something that makes subcontractors even more difficult to track is that the bill often includes labor and supplies. This makes it difficult to see exactly where the money is going and look for ways to cut costs. With accounting software, a manager can see that X was paid to a subcontractor who poured the foundation. But it also breaks it down into supplies and labor, so that a manager can discern if there is a better price on materials or if the labor cost was inflated.
All of the above mentioned things can be done using a standard (not industry specific) accounting software like QuickBooks, however, standard software is essentially a blank sheet that can be customized to meet the needs of the business. With a construction-specific accounting software program, the legers and forms are pre-defined – often leaving little room for customization.
Depending on the extent of the construction projects that a contractor is involved in, it still may be substantial work to customize QuickBooks to meet their needs, but then we do have to remember that contractors are used to “building things”.
As we all know, having an accounting system is a vital piece of any successful business. An accounting system provides an automated and easy way to track how much money is being made vs. how much money is being spent.
Creating proper accounts in an accounting system to track business Assets, Liabilities, Equity, Income, Cost of Goods Sold, and Expenses will allow your construction client to see an overall picture of their company’s worth or value from a financial standpoint – not only for themselves, but also when they apply for a loan, or have to be bonded.
A construction company, like any other company, has numerous responsibilities – to their employees, customers, vendors, subcontractors, investors, and even the government.
Contractor Business Needs:
The construction industry has some very specific accounting requirements. In addition to Payroll, Accounts Receivable, and Accounts Payable functions, they need to be able to have systems to handle Estimating, Job Costing, Overhead, Billing and/or Invoicing, Project Management, Scheduling, and Customer Management – just to name a few.
No two contractors will have the EXACT same need for functionality OR use the exact same cost coding system for billing. Even if two construction companies are similar (for example, two plumbing contractors), a bookkeeping system may need to be modified to meet the needs of each business. A bookkeeping system should be designed to meet the needs of each business, keeping in mind that it should not be overly complex and should take into consideration:
- the types of transactions the business enters into and how information about those transactions can be captured, and
- the type of financial information the business needs to efficiently manages its operations
So, do not let anyone tell you that every contractor uses a specific Chart of Accounts or Cost Coding system.
A typical construction specific accounting program (which carry a big price tag) includes:
- Accounts Payable
- Job Cost Management
- Accounts Receivable
- Payroll – including Union Payroll, Certified Payroll, Union Reports
- Detailed Job Budgets
- Flexible Billing modules – including Time & Materials billings, AIA billings, Over & Under Billings
- General Ledger
- Subcontract status
- Custom job reports
- Purchase Orders
- Inventory
- Equipment Tracking
- Work in Progress
- Retainage Receivable
- Retainage Payble
- Construction Loans
There are many software packages available for the construction industry – ranging from $5,000.00 to $50,000.00 in price with expensive annual updates, that do not include support. Because of this, especially in this tight economy, more and more contractors are switching to QuickBooks Pro, Premier, or Enterprise to fulfill their bookkeeping and accounting needs.
QuickBooks, while not specifically developed for the construction industry is:
- extremely user-frindly
- can provide a very strong accounting structure “backbone”
- can be operatoed by personnel who have little computer knowledge (bookkeeping and accounting knowledge, however, is important – you need to know your “debits from your credits”)
- with the use of reasonably-priced QuickBooks integrated applications to provide some of the higher level functionality
QuickBooks, when used in conjunction with 3rd party integrated applications, is a viable and cost-effective choice for contractors.
