For contractors, cost of jobs or margin is a very important number. It takes the right setup in QuickBooks in order to easily find this number without searching and calculating to get it.
We would like to be able to find the cost of jobs as a section on the profit and loss report. Ideally, the profit and loss report would give us several sections. One for revenue, another for cost of jobs with a resulting number to show the margin over job costs, and another for other more administrative or overhead type expenses.
The account type that will help us accomplish this is the cost of goods sold type, often abbreviated as COGS.
COGS is associated with selling products or merchandise. But it is only semantics. The margin or cost of jobs is the same function, just with a more service-based business.
The profit and loss report shown is from a QuickBooks sample file. The company name is Rock Castle Construction.
The report shows the cost of jobs is 19,725.91 or 38.5% of revenue. This leaves a gross profit or margin of $31,515.25 or 61.5%.
This information can be crucial to running a successful business. The Gross Profit or margin tells us how much of each dollar coming in is left for business expenses after all the costs of doing the job are accounted for.
In this case, completing the jobs for the period of time reported, left Rock Castle Construction with 61.5 cents of each dollar received from customers. That’s what the company has with which to pay its normal business expenses.
This was accomplished by selecting the right account types.
Using cost of goods sold type accounts for direct job expenses makes the profit and loss work as it does. That is, it creates the report in such a way that important information like cost of jobs is available at a glance.
To make job reports work well, we need to use items for expenses. Checks and bills for job expenses should use the items tab rather than the expenses tab.
One more thing to look out for, the items must post to the correct accounts.
In summary then, Rock Castle Construction is getting this vital information on its profit and loss report by doing several things right.
The company uses cost of goods sold type accounts for its job expenses.
It makes sure that the items for job costs in QuickBooks post to the cost of goods sold type accounts.
It uses those job cost items in expense transactions like checks and bills.
And it makes sure the data entry person posts transactions using the correct items.