A contractor can report a profitable job and still struggle to pay the next subcontractor. Billings, earned revenue, collections and costs describe different parts of the project. Reliable job costing connects them without treating the bank balance as profit or an unpaid invoice as spendable cash.
This article is part of our guide to construction and contractor accounting.
For a construction business in South Florida, the practical goal is a project record that supports pricing, monthly decisions and the tax return. The accounting method and contract terms determine how those records reach the financial statements and tax filings.
Build one record for each project
Use a stable job number across the contract, purchase orders, time entries, supplier bills, subcontractor applications and customer invoices. Record the customer, site, project manager, contract date, original price and budget version. Keep a change log showing requested scope, cost estimate, approval status, enforceable payment terms and collection concerns.
Code project-specific transactions to the relevant job and split shared transactions using documented amounts or allocation drivers. General office costs, borrowing, owner contributions and distributions still need appropriate accounts; forcing every transaction onto a project can conceal their nature. A payment for equipment may create an asset, while a loan principal payment reduces a liability.
Separate direct costs, overhead and financial-statement treatment
Track materials, subcontract work, project labor and job-specific equipment use consistently. A supervisor assigned to one project may be a direct cost; a supervisor covering several jobs may require allocation. Choose a reasonable driver that reflects resource use, such as documented labor hours or equipment hours, and review it when operations change. Consistency alone does not make an arbitrary allocation reliable.
A management report can allocate general overhead to assess pricing and overall profitability without making that overhead a capitalizable contract asset. Under U.S. GAAP, fulfillment costs qualify for capitalization only when the applicable criteria are met; other accounting topics may govern inventory or equipment. General administration and abnormal waste ordinarily cannot be deferred simply to improve a job’s margin. Revenue recognized over time also needs an appropriate progress measure; cost-to-cost calculations may require adjustments for inputs that do not depict performance. See FASB Topic 606 and Subtopic 340-40.
For tax purposes, the applicable construction method has its own cost-allocation rules. For example, percentage-of-completion contracts generally absorb direct and properly allocable indirect costs. Keep a reconciliation when management, financial-statement and tax cost schedules differ. See Treasury Regulation 1.460-5.
Update the forecast without hiding disputed work
A useful forecast combines costs incurred to date with the best estimate of costs still needed to finish. Divide remaining costs between unperformed commitments and work not yet committed, so neither is counted twice. A purchase order already received and included in actual costs must not remain in the unperformed-commitment total.
Maintain approval controls, but do not leave incurred costs or expected remaining work out merely because a customer has not signed a change order. Cost exposure and the right to collect are separate questions. Document disputed amounts, potential rework and schedule effects, and show their effect on the forecast.
For GAAP revenue, a contract modification depends on enforceable rights and obligations; approval may be written, oral or implied by customary business practice. Approved scope with an unsettled price requires analysis of the transaction price and variable-consideration constraint. An internal forecast of reimbursement is not enough. The FASB revenue-transition staff paper on contract modifications discusses the relevant Topic 606 provisions; the staff paper itself is not a new accounting standard.
Keep revenue, receivables and retainage distinct
Under Topic 606, an unconditional right to payment is a receivable. A right that depends on something besides the passage of time is a contract asset. Conditional retainage may therefore belong in the contract-asset balance; unconditional retainage belongs in receivables. Contract assets and liabilities are presented net for each contract, with unconditional receivables separate. A customer advance for unperformed work can create a contract liability rather than earned revenue. See the FASB educational paper on construction retainage.
Illustrative project: Assume one $500,000 performance obligation qualifies for GAAP revenue recognition over time, cost-to-cost faithfully measures progress, and the costs below are recognized as contract expenses as work is performed. There are no opening balances, abnormal-waste adjustments or special uninstalled-material issues. This is a book-accounting illustration, not a tax-method determination.
| Measure | Calculation | Amount |
|---|---|---|
| Original cost budget | Initial estimate | $300,000 |
| Costs incurred | Recorded project costs | $160,000 |
| Unperformed commitments | Remaining contracted work and supplies | $100,000 |
| Uncommitted remaining costs | Additional work still expected | $60,000 |
| Estimated total cost | $160,000 + $100,000 + $60,000 | $320,000 |
| Forecast total gross profit | $500,000 − $320,000 | $180,000 |
| Progress | $160,000 ÷ $320,000 | 50% |
| Revenue earned to date | 50% × $500,000 | $250,000 |
| Gross profit to date | $250,000 − $160,000 | $90,000 |
| Gross progress claim | Includes $24,000 conditional retainage | $240,000 |
| Unconditional amount billed | $240,000 − $24,000 | $216,000 |
| Customer cash collected | Payments received | $200,000 |
| Unpaid unconditional receivable | $216,000 − $200,000 | $16,000 |
| Contract asset | $250,000 − $216,000 | $34,000 |
| Project costs paid | Cash paid against incurred costs | $150,000 |
| Unpaid project costs | $160,000 − $150,000 | $10,000 |
| Net project cash movement | $200,000 − $150,000 | $50,000 |
The revised budget shows a $20,000 cost overrun and a forecast gross margin of 36% ($180,000 ÷ $500,000). The $34,000 contract asset includes $10,000 earned beyond the gross claim plus $24,000 conditional retainage. When that retainage becomes unconditional, reclassify it to receivables; collecting it does not create revenue a second time.
The $50,000 cash movement is before general overhead, taxes, financing and owner transactions. It differs from the $90,000 gross profit because collections and cost payments lag recognition. As a cross-check, $50,000 cash plus $16,000 receivables plus $34,000 contract asset equals $10,000 payables plus $90,000 project profit. A work-in-progress schedule should make these differences visible.
Use QuickBooks project reports with a defined reporting basis
Intuit documents project tracking for QuickBooks Online Plus, Advanced and Intuit Enterprise Suite. Assign eligible income and cost transactions to the correct project and compare the resulting detail to the general ledger. More detailed construction functions depend on the product and subscription. Confirm the actual plan and test one representative project before designing the workflow around a feature. See Intuit’s project setup documentation.
Labor reports can use estimated hourly costs or actual payroll expenses. Estimated rates can include selected burden costs and depend on recorded time; actual payroll expenses appear after payroll runs. Reconcile hours, allocation and report settings, and never post estimated labor again on top of actual payroll already in the books. Intuit notes that switching the project labor-cost display does not change the ledger. See Intuit’s labor-cost guidance.
A bank-feed import is not evidence that a transaction has been correctly classified or newly needs posting. Match imported payments to recorded bills or receipts where appropriate, resolve duplicates and reconcile the account to the independent statement. A project profitability report also does not automatically produce a compliant revenue-recognition or tax work-in-progress schedule.
Reconcile the tax method separately
The business’s overall cash or accrual tax method is distinct from special rules for particular contracts. Cash-method timing generally follows receipt and payment, subject to exceptions; accrual timing follows the applicable recognition and deduction rules. Book income can differ from taxable income. See IRS Publication 538.
For federal tax, a long-term construction contract generally is one not completed in the tax year it is entered into; it need not last twelve months. Section 460 generally requires percentage-of-completion, subject to exceptions. For nonresidential construction, the small-contractor exception requires a taxpayer that is not a tax shelter to satisfy the section 448(c) gross-receipts test for the contract-entry year and reasonably expect completion within two years of commencement.
For contracts entered into in tax years beginning after July 4, 2025, the residential-construction exception extends beyond homes with four or fewer units; the 80% estimated-cost definition still matters. For a calendar-year taxpayer, that effective-date rule starts with contracts entered into in 2026. Exemption from percentage-of-completion does not itself exempt costs from capitalization: residential contracts have separate gross-receipts and expected-duration conditions, including two years for home construction and three years for other residential construction. See 26 U.S.C. § 460.
An exempt contract may use a permissible exempt-contract method, such as completed-contract where applicable. Do not simply switch an existing method on the return. Revenue Procedure 2026-32 addresses automatic changes following the residential-law amendment and updates related small-contractor changes. Its applicable procedures, filing transitions and cutoff rules need review. Adopting a permissible method for the first contract of a particular type can differ from changing an established method. Keep older and newer contract cohorts identifiable.
Keep payroll, equipment and Florida sales tax in their own schedules
Calling a worker a subcontractor or obtaining a W-9 does not establish independent-contractor status. Federal classification considers behavioral control, financial control and the relationship as a whole. Employees require applicable payroll withholding, employer taxes and reporting; genuine contractors follow the applicable information-return rules. State labor and workers’ compensation requirements also need separate review. See the IRS worker-classification guidance.
Maintain an equipment schedule with acquisition documents, basis, placed-in-service date, business use, improvements and disposals. Buying an asset is not automatically the same as deducting its full price; depreciation and any expensing election depend on the relevant requirements. Keep business-use evidence for vehicles and other mixed-use property. See IRS Publication 946.
Florida real-property contractors working under lump-sum, cost-plus, guaranteed-price or ordinary time-and-materials contracts generally consume the materials and pay tax on their purchases; they do not simply add sales tax to the customer’s construction invoice. Qualifying retail-sale-plus-installation contracts, sales of items that remain tangible personal property, mixed contracts and fabrication can produce different results. Merely itemizing materials on an invoice does not turn a real-property contract into a retail sale. Review the actual agreement under Florida Administrative Code Rule 12A-1.051.
Close each month with one reconciled project package
- Complete the cost cutoff. Identify received materials, performed subcontract work, payroll and other incurred costs, including amounts not yet invoiced where the accounting basis requires accrual.
- Reconcile the books. Tie bank and credit-card accounts to statements and reconcile payroll, receivables, payables and equipment schedules.
- Refresh each active job. Update remaining costs, unperformed commitments, changes, billing rights, retainage and expected collections.
- Review the work-in-progress schedule. Check the revenue method, forecast margin, contract balances and ledger entries. Investigate unsupported adjustments and changing assumptions.
- Plan cash and taxes. Map expected collections against payroll, suppliers, debt and taxes, using the relevant entity and owner obligations rather than a flat percentage of the bank balance.
Store the reconciled package with contracts, approvals, invoices, time records and supporting calculations. Tax retention is not a universal three-year disposal rule. The IRS describes a usual three-year period with longer exceptions, employment-tax records generally kept at least four years after the tax is due or paid, whichever is later, and property records retained through the limitations period for the disposal year. Check claims, insurance, lender and other retention requirements before disposal. See the IRS record-retention guidance.
A focused review can begin with one current project and trace it from contract to costs, billing, collections and the tax reconciliation. Bring unresolved differences to the review instead of using unsupported journal entries to make reports agree.
Frequently asked questions
Is the amount billed the same as revenue or cash?
No. Revenue follows the applicable accounting rules, billing reflects contractual payment rights, and cash reflects collections. Track all three separately, including conditional retainage and unpaid receivables.
Should unapproved change work be left out of the cost forecast?
No. Include costs already incurred and the best estimate of remaining work. Track approval and collection risks separately; expected reimbursement is not automatically recognizable revenue.
Does a QuickBooks project report determine the tax method?
No. A project report supports management reporting. The overall tax method, contract-specific rules and book-to-tax adjustments require separate analysis.
What should a contractor bring to a year-end review?
Bring reconciled books, current contract and change logs, the work-in-progress schedule, receivable and payable details, payroll and subcontractor records, and equipment and prior tax-method schedules.