QuickBooks Contractor Tip – Handling Negative Change Orders
Change Orders are a fact of life that a contractor must deal with on just about every construction project that they are involved with.
Construction contracts start with an original bid amount for specific cost codes, phases of work, or line items. However, most construction contracts change as work proceeds; resulting in both increases and decreases or positive and negative change orders – which affect the original bid amount.
There are many ways in which people will handle Change Orders when using QuickBooks, such as just going to the original Estimate and changing the dollar amounts of the affected items. This is a “quick and easy fix”; however, it doesn’t leave a good documentation trail for what occurred on the project and can cause a lot of confusion.
Handling change orders that increase the value of the contract can be accomplished by:
- Editing the original Estimate and ADDING lines to the bottom indicating the cost codes and dollar amounts that are causing the increase.
- Creating a Sub-Job of the Job called Change Order 1 (2, 3, 4, ect.) and creating an estimate at the Sub-Job level to track just the cost codes involved in the change order.
Dealing with Negative Change Orders that reduce the original bid amount, is a bit more difficult – because QuickBooks will not allow you to create a Negative Invoice.
When you receive a negative change order that is LESS than the remaining balance on the contract, it’s a fairly easy process.
- Go to your QuickBooks Estimate, add a Change Order Item with no dollar amount – this provides a clear separation of the Original Contract amount.
- Below that add the Item that represents the reduction to the contract, enter the value as a negative amount, complete with the MINUS sign.
When you are ready to prepare your next progress invoice:
- Bill the negative amount at 100%.
- Reduce the corresponding line item in the original contract section.
- Bill for any other line items that you need to.
Or simply generate a zero dollar invoice to record the reduction.
This method allows for a good documentation trail that everyone involved can easily see.