job-costing.a-systems.netJob Costing | A-Systems Corp

Home Software JobView - Construction Accounting Visual Bookkeeper - General Accounting Company About Partners Users New Features User Conference Order Checks Credit Card Processing Support Contact Downloads Updates JobView Training Visual Bookkeeper Training Federal Tax Tables Support FAQ Job Costing Accounting for Expenses in Construction Menu What Is Job Costing? Job Costing Software When is the Best Time to Switch Software? Why Is It So Important? Budgeting How Is Job Costing Different? Is Job Costing Difficult? Is It Worth the Effort? Job Costing Terms What is Job Costing? Job costing (aka, job cost accounting) is an accounting process where actual costs are tracked and compared to budgeted costs. These costs are tracked job by job, line by line, to give a detailed view of a job's status. The budget is typically derived from an estimate of job costs, which is made when bidding on a job. As a company pays bills, subcontracts, and payroll, job costs are naturally accumulated. When those job costs are expensed, they are matched against the budgeted amounts for each part of the job. This allows you to see if you are on budget for each phase of a project. When costs are out of line, management can track down the cause. They can answer questions like: Is a change order necessary? Were we double billed? Did we pay an invoice twice? Why does one crew always manage to require twice the estimated hours on job after job when the other crews are always within budget? Cost Codes Expenses are organized by costs codes. A cost code is a number that represents a specific type of work done on a project. For example, the cost code for electrical outlets is 16-300. In your estimate, you can assign a budget of $400 to cost code 16-300. This includes the labor and materials. When the outlets are actually installed for $380, those expenses are assigned to cost code 16-300. Now you can easily compare budgeted costs to actual costs to see that you are still on budget for that particular part of the job. This is extremely helpful for narrowing down where expenses are getting out of hand. Without cost codes and good accounting software, you may not know you're over-budget until the project is completed. Job costing allows you to see the status of each phase in real-time, so adjustments can be made early on. When variances are caused by changes in the job specifications, a Change Order may be required, which will adjust the job budget and the amount that will be billed to the owner. Forecasting Software can also use algorithms to calculate a percentage of completion for each cost code, and then forecast a cost to complete each phase of each job. This can show you cost variance before it happens. Of course, actual information from field reports may be used in place of software-generated forecasts to use manually forecasted costs to complete. In summary, job costing is monitoring profitability on each job. It's done by accumulating and comparing actual job costs, and then forecasting cost-to-completion. Job Costing Software The function of job cost accounting software is to track actual costs, compare them to the budgeted costs, and provide information about whether there is a variance between the two. Job costing can be used for the full spectrum of jobs, from monitoring costs of a multi-year project down to tracking costs on jobs so small that they are completed in less than a day. The goal is cost control. Job costing software works like this: • Enter the budget for a job, which means take the estimate and use it as the budget. • Pay the bills for the job, assigning the costs to the appropriate budget category. • Print reports that show how actual expenses compare to what was budgeted. • Find problems in time to correct them, obtain Change Orders, etc. • Make a profit. A-Systems has made accounting software specifically for the construction industry since 1978. Job cost accounting is a management tool, a tool designed to monitor and control costs. As a by-product of job cost accounting, the company handles its financial reporting, bonding, payroll, accounts payable, accounts receivable, purchase orders, inventory, W-2s, 1099s, and so on. The key to job cost accounting is categorizing each phase of each job into a separate budget. A numbering system, called Cost Codes , is used to track labor, materials, equipment costs, subcontractors, and a catch-all “other” category. The industry standard was developed by the Construction Specification Institute, the CSI Cost Code System. With this system, every phase of every job has its own individual budget where actual costs can be compiled. Complex jobs can have budgets for thousands of Cost Codes, while a simple job may have a dozen or so. Costs can be tracked in as much detail or as little detail as desired. To learn more, check out A-Systems Job Costing Software . When is the Best Time to Switch Software? Most people assume that the best time to switch to job costing software is at their year-end. Here is the reality: That's when the accounting people are at their busiest season, closing books, doing W-2s, filing year end tax reports, doing year-end adjustments, AND now they have to implement new job costing software too??! Being practical, the best time to switch to job costing software is almost any time except the year end. Yes, people do it, and they live through the stress, but it's not necessary. How is it done when it's not year end? How to Switch Accounting Software Do a cut-off statement. Enter the year-to-date balances in the job costing software, including year-to-date payroll information. Move ahead on new job costing software. Don't look back. Enjoy the new, timely job costing information. Control costs, make money, succeed. Why is Job Costing So Important? Here is a fact that will surprise few contractors: Construction is the highest risk industry in the US economy. There are more business failures in construction than any other industry, both in number and as a percentage. The reason for this gloomy statistic is the reality that most contractors fail to monitor construction costs, so they get out of control. Before the contractor knows it, a job has lost money and the business has deteriorated toward insolvency. If things are not turned around, the owner's home is soon being foreclosed on and another marriage ends up in divorce court. It's ugly! In response to this risk, some contractors reason that the best solution is to keep their business small, thereby reducing the risk of failure. Surprisingly, the same study that documented how risky construction was (done by the US Small Business Administration) also concluded that staying small actually increased the odds that a contractor would fail. In fact, of all the industries in the study, the one that benefited most by growth was construction! How can a contractor monitor costs AND grow, thereby increasing the chance for success? The answer is to use job costing. There is an old axiom, "Use the right tool for the job." When it comes to construction, the right tool for accounting is job costing. Taking that a step further, they need to use REAL job costing software to do it right. An accountant once said, "Contractors that don't use job costing are either lucky or bankrupt." It's a bold statement, but it makes a fair point. If you don't know where you stand on each part of a job, you're relying on luck to get by. One contractor called A-Systems with profit problem. He had just finished a job that he bid with a $100,000 built-in profit. He complained that when he paid the last bill, instead of making $100,000, he had lost $120,000. His big concern was that he had no idea where things went wrong, so he didn't know what to fix! Fortunately, we were able to get him setup with A-Systems software, which helped him avoid unwanted surprises from future jobs. If a contractor is using job costing software and actual costs get out of line, there is still time to find out why....