How to Do Job Costing in QuickBooks Online?

Job costing in QuickBooks Online is a crucial aspect of managing your business's finances, particularly if you undertake projects or jobs for different clients. By accurately tracking the costs associated with each job, you gain insights into profitability, resource allocation, and project management. This article aims to guide contractors on how to effectively perform job costing in QuickBooks Online, providing step-by-step instructions and highlighting key features for construction business.

Understanding Job Costing in Construction Industry

Job costing means income and expenses tracking by a job and then comparing its actual amount to its estimated amount. It is extremely necessary for any successful contractor, whatever software you use.

Although there are many comments that QuickBooks cannot do job costing, it is still suitable for small contractors, who would like to track expenses and income as well as pull some project reports in the easiest way.

QuickBooks Online, though not specifically designed for QuickBooks job costing, offers features that can be utilized to effectively track income and expenses for specific projects.

How to Do Job Costing in QuickBooks Online ?

Before going through some ways to do job costing in QuickBooks Online, let us set up the job costing cost codes in QuickBooks Online:

For contractors, a basic traditional job cost structure might include:

• Jobs or projects

• Cost codes for particular activities on the project

• Cost types or cost classes that tie out to expense types on the Income statements.

Because QuickBooks is not built for job costing purposes, QuickBooks users could use items (in QuickBooks desktop) or products and services (in QuickBooks Online) to represent QuickBooks construction cost codes. These exist on both expense and sale sides, therefore you can use them on both invoices and bills, for instance. As a result, you could set up profit and loss reports per item across your whole company.

Read more: What can be your mistakes when using QuickBooks?

How to Adding Products and Services in QuickBooks

• Click on the Gear icon (⚙️), and select [Lists] ➡︎ [Products and Services]. You can also access to Products and Services list by the [Sales] on the left sidebar and then selecting on the [Products and Services] tab.

• Click on the [New] button in the upper right corner.

• Select an item type — either [Inventory], [Non-Inventory], [Service] or [Bundle].

• Enter the relevant item information and choose a category to record the income of this item. Ensure all necessary information is accurately entered.

• To be able to track costs for this item, tick the checkbox [If I purchase this product/service from a vendor]

• Once you've entered all the required information, click on the [Save and close] button to save the new product or service in QuickBooks Online.
  

1. Using Sub-customer as Job:

Sub-customer is the word that QuickBooks Online uses to call Job of QuickBooks Desktop edition. Just like one job is under only one customer, one sub-customer belongs only to 1 customer, whereas one customer can have many jobs or sub-customers.

▶︎ Adding sub-customers into QuickBooks

• To add a new sub-customer, chose [Sales] on the left sidebar

• Click on the [Customer Tab]

• On the upper right, click on [New Customer]

• On the [Company] and [Display name as a field], enter the name of the desired project. To avoid confusion, this name should be distinct from the name of the customer. For example, you could use the project number.

• You should also fill in all information for deep tracking.

• Tick the box [Is sub-customer] and choose the customer name in the underneath box.

• Select [Bill with parent] to tie the invoice to the customer when recording an expense under the sub-customer.

• Click [Save]

Sub-customers can be used for different purposes by numerous other industries. A consulting company uses it to track businesses operated by the same person. An advertising company might use them to track multiple projects for a single client. For contractors, sub-customers could be used to gain some amount of job cost reporting.

▶︎ Sub-customer Method Reports

Using the sub-customer method, you can view many reports from the perspective of QuickBooks construction job costing. For example, from the left sidebar, you can go to [Reports] and find [Income by Customer Summary]. This should allow you to view your project income, expenses, and net income for each sub-customer.

Read more: Progress Invoice in QuickBooks for Construction Accounting – Step-by-Step Instruction

2. Using Classes and Locations:

QuickBooks Online classes and locations provide an additional view to look at your data, apart from the formal QuickBooks job costing. Locations are usually used to represent geographical areas and the classes could be used for business units. The biggest difference between them is this: you can attach a transaction to only one location, but you can specify line items to different classes.

▶︎ Turning on the Classes and Locations feature in QuickBooks.

To use classes and locations in QuickBooks Online Plus:

• Click the Gear icon(⚙️) and select [Your Company] ➡︎ [Accounts and Settings].

• Select the [Advanced] tab.

• Click the edit icon across from [Categories] to enable Track classes and Track locations.

• Click [Save].

• From the main menu, click the Gear icon (⚙️), and select All Lists ➡︎ Locations ➡︎ New or All Lists ➡︎ Classes ➡︎ New.

• Enter your location or class information. You can use this same process to create sub-classes by also enabling the checkbox [Is sub-class] and selecting the parent class.

Read more: How To Write Off Invoice in QuickBooks Desktop? – Step-by-Step Guideline

3. Using Project

Project is the additional feature in QuickBooks Online that could help you keep all job-related information organized together. With projects, you can see all transactions, outstanding invoices, and profitability of an individual job.

▶︎ Turning on Projects in QuickBooks

To begin accessing project features in QuickBooks Online Plus:

• Click the Gear icon (⚙️) and select Your Company ➡︎ Accounts and Settings.

• Select the [Advanced] tab.

• Click the edit icon across from [Projects] to enable [Organize all job-related activity in one place]

• Click [Save]

As a result, you will be able to see [Projects] in the left sidebar and can begin working with them. Click on “Projects” to add your first project and attach it to a customer.

To add project transactions, go to your [Projects] list, select your job, and click the [Add to project] button in the upper-right corner. Alternatively, you can use the plus icon at the top, select the desired transaction type and choose the project name from the Customer/Projects drop-down menu.

▶︎ Reporting Projects

The QuickBooks Online projects feature adds three reports, as well as a project-centered transaction list. You’ll find these under “Projects” as well. Project Profitability gives you a P&L report for the job without needing to filter for a sub-customer. Similarly, Unbilled Time and Expenses bring these transactions under one project. Finally, Non-billable Time is a report contractors may want to use to track time on a job that won’t be directly billable, such as administrative or overhead labor.

Because projects function the same way that sub-customers do, previous reports such as Income by Customer Summary and Budget vs. Actual are still available with projects turned on. When setting up custom filtering, you’ll simply select the name of your project or sub-customer from the Customer filter drop-down menu.

▶︎ Key Takeaways:

There are 3 methods for QuickBooks construction job costing Online: (1) Using sub-customers as jobs, (2) Utilizing classes and locations, and (3) Leveraging the Projects feature.

Each method has its own set of steps and benefits. While QuickBooks Online provides useful tools for job costing, it may have limitations compared to specialized QuickBooks job costing software. It is important to consider the specific needs and requirements of the business before deciding on the best approach.

Read more: QuickBooks Online Job Costing: Tips to Improve Your Bottom Line

Conclusion

Using small business accounting software is no reason not to track your costs for the job. While it’s not specifically designed for these purposes, QuickBooks Online provides several feature sets that can be useful for organizing and reporting some of your crucial job data.

If you use QuickBooks or just aren’t ready yet for a full job cost of QuickBooks accounting system, make sure you’re maximizing your resources, gathering good cost data, and practicing good habits that will help you be successful in the next stage of your growth.

After all, don't let the complexities of job costing and software implementation overwhelm you. Our expert at Construction Cost Accounting (CCA) bookkeeping services will handle all the work for you, ensuring seamless job costing and helping you choose the right software for your business. Let us handle your business and you can do best: building the future.