QuickBooks Online Job Costing: Tips to Improve Your Bottom Line

Accurate construction job costing is vital for businesses to track the profitability of individual projects and make smart financial decisions. QuickBooks Online provides robust job costing features that can help you manage your project costs efficiently. This article will guide you through the essentials of job costing in QuickBooks for contractors and offer QuickBooks Online tips to enhance your bottom line.  

Understanding Job Costing in Construction Projects

Job costing is the process of tracking all expenses related to a specific job or project. This includes labor, materials, and overhead costs. Effective job costing allows construction companies to: 

• Figure out how profitable each job is

• Make smart choices about what to bid on 

• Control project costs.

• Enhance financial reporting. 

Components of Job Costing

1. Labor Costs: Wages and benefits paid to workers.

2. Material Costs: Costs of materials used in the project.

3. Overhead Costs: Indirect costs such as utilities, rent, and administrative expenses.

Setting Up QuickBooks Online for Job Costing

Step 1: Initial QuickBooks Online Setup

Creating Projects

• Navigate to Projects: In QuickBooks Online, go to the Projects menu.

• Create a New Project: Click on "New Project" and enter the project name. Make sure you have address information recorded for the customer profile.

• Assign Transactions: Link relevant expenses, invoices, and time entries to the project.

Customizing Chart of Accounts

• Access Chart of Accounts: Go to the Accounting menu and select Chart of Accounts.

• Add Job Costing Accounts: Create accounts for labor, materials, and overhead costs specific to QuickBooks job costing. 

Step 2: Setting Up Items and Services

• Go to Products and Services: In the Sales menu, click on Products and Services.

• Create Items: Add items and services related to your projects, ensuring each is categorized correctly for construction job costing.

Example

Suppose you have a project named "Residential Renovation". You create a project in QuickBooks Online, link all related expenses (e.g., $5,000 for labor, $2,000 for materials), and track them under this project.

Tracking Labor Costs

1. Time Tracking: 

Utilizing QuickBooks Time (formerly TSheets)

• Integrate QuickBooks Time: Link QuickBooks Time with QuickBooks Online for seamless time tracking.

• Track Employee Hours: Employees can clock in and out, and their hours are automatically linked to the respective projects.

2. Payroll Integration

• Set Up Payroll: Use QuickBooks Payroll to manage employee wages.

• Assign Labor Costs: Allocate payroll expenses to specific jobs.

3. Assigning Labor to Jobs

• Create Timesheets: In QuickBooks Online, go to the Time menu and create a timesheet.

• Link to Projects: Assign hours to specific jobs to keep accurate records of labor costs.

Example Formula

If an employee works 40 hours a week at $25/hour on a project, the labor cost for that week is: Labor Cost= Hours Worked×Hourly Rate

Managing Material Costs

1. Entering Bills and Expenses

• Record Expenses: Go to the Expenses menu and enter bills for materials purchased.

• Link Expenses to Projects: Connect each cost to the right project.

2. Using Purchase Orders

• Create Purchase Orders: In the Expenses menu, select Purchase Orders and create new ones for materials. Make sure that the right projects are linked to the buy orders.

3. Inventory Tracking

• Set Up Inventory: Use QuickBooks Online’s inventory tracking features to manage materials.

• Allocate Materials: Assign materials to projects as they are used.

Read more: 4 Proven Strategies to Control Your Construction Material Costs

Example

If you purchase $3,000 worth of lumber for a project, enter this expense in QuickBooks Online and assign it to the project. As materials are used, track them to ensure exact costing.

Allocating Overhead Costs

Overhead costs are indirect expenses not directly tied to a specific job but necessary for overall operations.

1. Methods of Allocation

• Direct Labor Hours: is allocated based on the ratio of direct labor hours used for each job.

• Direct Labor Costs: is distributed according to the direct labor costs of each job.

• Machine Hours: is allocated based on machine usage time.

2. Setting Up Overhead in QuickBooks Online

• Create Overhead Accounts: Create an overhead expense account by going to the Chart of Accounts and adding a new expense account named "Overhead Allocation”.

• Allocate Overhead Costs: Regularly review your overhead allocation method to ensure it remains relevant. Adjustments can be made in QuickBooks by revisiting the overhead item setup.

Example Formula

Project Overhead Allocation=(Total Labor CostProject Labor Cost​)×Total Overhead Cost 

Generating Job Cost Reports

1. Available Reports

QuickBooks Online offers various job cost reports, including:

• Profit and Loss by Job: Shows profitability for each project.

• Job Costing Summary: Summarizes costs and revenues by job.

• Unbilled Costs by Job: Lists costs incurred but not yet billed.

2. Customizing Reports

• Go to Reports: In the Reports menu, select the desired job cost report.

• Customize: Use filters to customize the report based on project, date range, and other criteria.

3. Interpreting Reports

Analyze the reports to identify profitable projects, cost overruns, and areas for improvement. 

Analyzing Job Performance

• Comparing Estimated vs. Actual Costs: Compare estimated costs to real costs on a regular basis to find differences and make changes to future estimates.

• Finding Out What's Profitable: Use job cost reports to assess the profitability of each job. Focus on high-profit jobs and analyze the reasons behind successful projects.

• Making Decisions Based on Data: Utilize job cost data to make smart decisions about project bidding, resource allocation, and handle cost 

Conclusion

Accurate job costing in QuickBooks Online is essential for construction companies to manage costs effectively and improve profitability. By setting up QuickBooks Online correctly, you can gain valuable insights into your projects and enhance your bottom line.

However, managing this process can be complex and time-consuming. That's where we come in. At Construction Cost Accounting, we specialize in providing bookkeeping services tailored for construction companies. Our team of experts uses QuickBooks to ensure your job costing is precise and efficient, allowing you to focus on what you do best—building great projects.

Contact CCA for professional assistance and take your construction business to the next level.