My client, Amelia, is a sole general contractor and has hired AccuraBooks to maintain the bookkeeping for her sole long-term construction contract.
Each month Amelia receives funds from her client to pay for her administrative/management fees and also pre-payments (deferred income) for upcoming job labor and materials expenses.
For her bookkeeping, Amelia does NOT desire to employ the use of a complicated service and non-inventory items list to track all the different types of materials and labor for the most detailed job-costing.
Instead, I am going to employ the usage of (loosely) basic construction divisions as part of the overall cost of the build within the chart of accounts itself. This way, Amelia need only have to process a basic company income statement (by job-class if there were more than one job) to be able to gauge the overall revenues and direct costs for each job. (Note: this is also assuming Amelia does not want to employ the use of a Works-In-Progress (capitalizing the costs) system).
So, the revenues to recognize each month are simply going to be those admin/management fees and the recognized portion of those pre-payments (based on what was paid out for labor/materials that month).
The direct costs were detailed within the chart of accounts as follows:
- General Conditions
- Site Work
- Roofing & Insulation
- Doors & Windows
One can easily add to this list if need be (such as based on the 50 divisions from the MasterFormat of the Constructions Specifications Institute).
But the point of this article is that you do not need to build a complicated service/non-inventory items list if your small business is very simple and thus you have no desire to parcel out every nickel spent.
Note: AccuraBooks is a bookkeeping firm only, so please consult with your C.P.A. for verification and clarification about the contents of this article.