Why Construction Bookkeeping Is Different
A retail store or service business has a simple financial picture: revenue in, expenses out. Construction is different because:
- Each project is a separate profit center — you need to know if Job A made money and Job B lost money
- Projects span multiple months or years — when is revenue "earned"?
- GCs withhold retainage (5–10%) until project completion — it is not simply uncollected revenue
- Subcontractors are paid by the job — each subcontractor paid $600+ needs a 1099-NEC
- Labor, materials, equipment, and overhead must all be allocated to specific jobs
- Progress billings (AIA G702/G703) create billing vs earned revenue differences
Job Costing — The Foundation of Construction Bookkeeping
Job costing means every cost transaction is coded to a specific job (project), a cost type (labor, materials, subcontractor, equipment, overhead), and a cost category within the job. This gives you, at any point in the project:
- How much has been spent on this job to date
- How much is remaining in the budget for this job
- Whether you are over or under budget by cost category
- The gross margin on this job based on billings to date vs costs to date
At Sharma Jyoti and Co, we maintain individual job cost ledgers in QuickBooks for each active project. Every vendor bill, subcontractor payment, materials purchase, and labor allocation is posted to the correct job. The monthly job cost report shows every project's cost and billing status side by side.
The WIP Schedule — What Your CPA Needs at Year-End
| Column | What It Means |
|---|---|
| Contract Value | Total agreed contract price for this project |
| Costs to Date | All actual costs incurred on this project through the report date |
| Estimated Cost at Completion | Total expected project cost (original estimate revised for actuals) |
| % Complete | Costs to Date ÷ Estimated Cost at Completion |
| Revenue Earned to Date | Contract Value × % Complete — what you have actually earned |
| Revenue Billed to Date | Total progress billings submitted to GC/owner |
| Over-billing (liability) | Billed more than earned — you owe work to the client |
| Under-billing (asset) | Earned more than billed — the client owes you money |
Your CPA needs the WIP schedule at December 31 for year-end tax planning. Overbillings are a liability; underbillings are an asset. The difference between your balance sheet and your WIP schedule tells you how healthy your project portfolio is. We produce and deliver the WIP schedule monthly.
Retainage — How to Track It Correctly
On a $500,000 contract with 10% retainage:
- You bill $100,000 in Month 1
- GC pays $90,000 — withholds $10,000 as retainage
- Retainage receivable: $10,000 (separate balance sheet line)
- At project completion, you submit final payment application including retainage release
- GC pays the full $50,000 retainage withheld across all billings
In QuickBooks, retainage receivable should be a separate account — not mixed with regular accounts receivable. Many contractors lose track of retainage balances, resulting in late collection or missed billings. We maintain a retainage schedule for every active project and flag overdue retainage releases.
Subcontractor 1099-NEC — Construction's Biggest Compliance Obligation
Construction companies use subcontractors extensively. Every subcontractor (unincorporated — sole proprietor or LLC) paid $600 or more in a calendar year requires a 1099-NEC filed by January 31. This is not optional — the penalty is $60–$310 per form. For a contractor with 20 subcontractors, missing 1099s means up to $6,200 in penalties.
What you need before first payment to any subcontractor:
- W-9 form — legal name, address, EIN or SSN, entity type
- Insurance certificates (COI) — for your own protection, not IRS
- Signed subcontract agreement
At Sharma Jyoti and Co we track your subcontractor payment totals throughout the year so January is preparation, not a scramble.
Cash vs Percentage-of-Completion — Which Accounting Method?
Small construction contractors (average gross receipts under $27 million for 2024) can use cash basis for tax purposes — simpler, and you only pay tax when cash is received. Larger contractors must use the percentage-of-completion method for long-term contracts (contracts expected to take more than one year).
For management reporting, we recommend maintaining a WIP schedule overlay even for cash-basis contractors — it gives you a true picture of project profitability that cash accounting cannot provide.
What Sharma Jyoti and Co Handles Monthly
- Bank reconciliation — all business accounts
- All vendor bills, subcontractor payments, and materials purchases coded to the correct job
- Progress billing reconciliation — AIA G702/G703 billing amounts matched to QuickBooks
- Monthly job cost report — every active project, costs to date, billings to date, gross margin
- Monthly WIP schedule — over/under-billing per project
- Retainage receivable schedule — balance owed per project, days outstanding
- Subcontractor 1099 tracking throughout the year
- Payroll reconciliation (if you have W-2 employees)
- Year-end workpaper package for your CPA — trial balance, WIP schedule, retainage schedule, depreciation schedule, 1099 list
Cost Comparison
| Provider | Monthly Cost | Notes |
|---|---|---|
| US construction bookkeeper | $700–$2,500/mo | Specialist knowledge required |
| Construction CPA firm doing bookkeeping | $1,500–$4,000/mo | Qualified but expensive for routine work |
| Sharma Jyoti and Co | $300–$700/mo | Job cost ledgers, WIP schedule, retainage tracking, 1099s, year-end workpapers. ICAI CA firm. |