Construction chart of accounts for contractors
A construction chart of accounts is the list of categories every dollar in your books lands in. For a trades or service contractor, one decision matters more than the rest: everything it takes to do the job goes in cost of goods sold (COGS), and everything it takes to run the office goes below it in overhead. Your techs' wages, the payroll taxes and workers' comp on those wages, materials, subs and the running costs of the trucks all sit above the gross margin line.
Most construction charts of accounts you'll find are built for general contractors and homebuilders, with accounts for retainage and work in progress. If you run service trucks and bill when the job's done, you need fewer accounts and a cleaner split. Below is the chart we'd set up for an HVAC company or any service shop, what that split does to your numbers, and where the trucks go.
What is a chart of accounts?
It's the numbered list of accounts in your bookkeeping software. The first three groups (assets, liabilities and equity) make up your balance sheet. The last three (income, cost of goods sold and expenses) make up your profit and loss statement, the P&L. Every transaction lands in one account, so the chart decides what your reports can tell you.
What goes in cost of goods sold?
Every cost that exists because a crew went out and did the work. Brandon Vaughn, who coaches home service owners, gave an owner the list on a call:
COGS are going to include all of your technician payroll, all of your chemicals, all of your supplies, all of your subcontractors expenses, small tools and supplies, automobile gas, repairs and maintenance, that category of keeping those vehicles up and going. All of the costs that is incurred going out and actually performing the work.
We go one step further and put the employer payroll taxes and workers' comp on field wages in COGS too. They only exist because the tech is on your payroll, and they're part of what a tech costs (the labor burden post shows the math).
Office and admin pay, your own pay, marketing, rent, software, office insurance, accounting and bank fees stay in overhead. So does your production or operations manager. Brandon keeps that salary below the line on purpose: when the manager fills in for a tech who called in sick, the job gets done without a second paycheck in COGS, and the gross margin the manager is bonused on goes up.
A sample construction chart of accounts
This is the chart of accounts for a construction company that runs service trucks, not one that builds houses. The numbering follows a common convention; rename anything to match how your shop talks.
| No. | Account | Section | Notes |
|---|---|---|---|
| 1000 | Operating checking | Asset | Deposits in, bills out |
| 1200 | Accounts receivable | Asset | Invoiced, not paid yet |
| 1300 | Truck and shop stock | Asset | Only if you track inventory |
| 1500 | Vehicles | Asset | The trucks themselves |
| 1510 | Equipment | Asset | Gear that lasts more than a year |
| 1590 | Accumulated depreciation | Asset | Reduces 1500 and 1510 |
| 2000 | Accounts payable | Liability | Supplier bills not paid yet |
| 2100 | Business credit cards | Liability | One account per card |
| 2200 | Payroll liabilities | Liability | Withheld and owed payroll taxes |
| 2300 | Sales tax payable | Liability | Collected, not yours |
| 2400 | Customer deposits | Liability | Paid before the work is done |
| 2700 | Vehicle loans | Liability | Principal only |
| 3000 | Owner contributions | Equity | Money you put in |
| 3100 | Owner draws or distributions | Equity | Money you take out, not an expense |
| 3900 | Retained earnings | Equity | Past years' profit |
| 4000 | Service and repair | Income | |
| 4100 | Replacements and installs | Income | |
| 4200 | Maintenance agreements | Income | |
| 4900 | Refunds and discounts | Income | Recorded as negative income |
| 5000 | Field wages | COGS | Techs, helpers, installers |
| 5010 | Field payroll taxes | COGS | Employer share on field wages |
| 5020 | Field workers' comp | COGS | Field job classes only |
| 5100 | Materials and parts | COGS | Supply house runs and stock used |
| 5200 | Subcontractors | COGS | |
| 5300 | Permits, rentals and disposal | COGS | |
| 5400 | Small tools and supplies | COGS | |
| 5500 | Vehicle fuel | COGS | Tagged to each truck |
| 5510 | Vehicle repairs and maintenance | COGS | Tagged to each truck |
| 6000 | Office and management wages | Overhead | Includes your ops manager |
| 6010 | Office payroll taxes | Overhead | |
| 6020 | Owner or officer wages | Overhead | If you're on payroll |
| 6100 | Advertising and marketing | Overhead | |
| 6200 | Rent and utilities | Overhead | |
| 6300 | Insurance | Overhead | General liability, office |
| 6400 | Software and phones | Overhead | |
| 6500 | Accounting and legal | Overhead | |
| 6600 | Bank and card fees | Overhead | |
| 7000 | Interest | Other | Loan and card interest |
| 7100 | Depreciation | Other |
What the split does to your gross margin
Here's the same example company two ways: $1,000,000 a year in revenue, four trucks. The only difference is where the field costs sit.
| Line | Wages lumped in overhead | Field costs in COGS |
|---|---|---|
| Revenue | $1,000,000 | $1,000,000 |
| Materials, parts and subs | $200,000 | $200,000 |
| Field wages | in overhead | $220,000 |
| Field payroll taxes and workers' comp | in overhead | $35,000 |
| Truck fuel, repairs and maintenance | in overhead | $30,000 |
| Cost of goods sold | $200,000 | $485,000 |
| Gross margin | 80% | 51.5% |
| Net profit | $90,000 | $90,000 |
Net profit doesn't move. What changes is whether gross margin, what's left of each dollar after the work is paid for, tells the truth. The left column says every job is a home run. The right column says about half of every dollar goes to doing the work, and that's the number your prices have to beat. Brandon's rule of thumb is that COGS runs about 40% to 50% of revenue for most service businesses, so the right column is the normal range.
On one coaching call, Brandon pulled up a cleaning company owner's P&L and found a single payroll line called gross wages, with every tech and every office paycheck in it. His fix:
You need to have just your technicians appear under cost of goods sold. So, that should be renamed not to gross wages. It should be renamed to technician payroll or technician wages or labor wages or whatever you want to call it.
Until that line is split, a margin bonus, a price check and a hiring decision all run off the wrong number.
Where do the trucks go?
A truck touches three parts of the chart.
- The truck is an asset (1500). Your tax preparer decides how it's depreciated.
- The loan is a liability (2700). One owner asked Brandon where to code his truck payments, and the answer started with "Well, that's actually not an expense." The principal pays down the loan on the balance sheet. Only the interest is an expense (7000).
- Fuel, repairs and maintenance go in COGS (5500 and 5510), tagged to the truck they belong to.
That last step is how trucks get job-costed. Once every fuel and repair charge carries a truck, you can see what each one costs to run each month and fold it into your job profitability numbers.
In QuickBooks Online Plus or Advanced, you tag with classes (here's how we set up QuickBooks for contractors). To turn them on:
- Click the gear icon, then Account and settings.
- Open Advanced, then Categories.
- Switch on Track classes.
- Under Assigned classes, choose one class per row, so one card statement can split across trucks.
- Click Save, then add a class for each truck.
How many accounts do you need?
Enough to make a decision from, and few enough that every receipt has one obvious home. The sample above has about 40. When you want more detail (by truck, by service line, by location), add a class instead of another account.
Review the chart once a year, and when you change it, re-map at least the last 12 months so this year still compares with last year. The reports contractors need only work if the accounts underneath them stay put.
Common questions
Is a service contractor's chart different from a builder's?
Yes. Builders and general contractors who bill in stages need accounts for retainage, work in progress, and over- and under-billing. A service shop that bills at completion usually doesn't, and extra accounts are just more places for a transaction to land wrong. If you take deposits on big installs, the customer deposits account (2400) covers it.
Where does my own pay go?
If you're on payroll, your wages go in overhead (6020). Draws and distributions aren't expenses at all; they come out of equity (3100). How you should pay yourself is a tax question, so settle it with your tax preparer.
Do payroll taxes on techs really belong in COGS?
That's how we set up the charts we keep. Leave them in overhead and your gross margin looks a few points better than it is, and that's how jobs get underpriced.
Every YetiBooks plan includes a custom chart of accounts (see pricing). If your P&L has one line called wages, bring it to a free profit call and we'll show you your gross margin with the techs above the line.
