Sign North Carolina Banking Work Order Computer

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hi this is Jim Merritt with quick trainer incorporated in beautiful Wilmington North Carolina we are your QuickBooks and accounting experts and today's video is going to discuss a little bit about job costing in the construction industry and while I'm not going to go into complete detail I will go into some detail just to kind of give those who may be struggling with the job costing some direction and some pointers and ideas alright so I've got this fictitious company set up and if you look right here on the balance sheet I've got this account called construction in process now that is a very common thing that you direct all of your expenses when say building a house or building a commercial property or a bit of dwelling I should say on that you direct all of the cost initially to construction and process now the reason for doing this would be more along the lines if you're going for loans say construction loans banks want to see what your construction in process is what you know how much money you've got invested in that and then what happens is once let's say you're building a house once that house sales you then do a journal entry to reduce the construction and process for that specific project and then you move it over to the profit and loss statement to recognize those expenses because you're going to be recognizing the revenue from the sell of the of the property the home and you're also at that time going to be recognizing the expenses now quite honestly you can do this in absolute Reverse if you like if it doesn't impact your ability to get loan so for instance you could go ahead and recognize all of your cost of goods your subcontractors that are providing labor the materials and other construction costs that you may have in play but then it's going to be imperative that from one year to the next year that at the end of one year I should say that you understand what do you still have in process that you should not be recognizing the expenses because from a tax return standpoint that's going to be important the tax return is also going to reflect you know construction and process this is also known as working process so whip or construction and process or two terms that you'll hear but in any case at the end of the year your CPA will likely want to understand what do you have in process so they can reclassify these expenses that you've recognized over to the balance sheet as construction and process right I hope that makes sense so in this case we're going to go with the construction and process method where we show all of the expenses coming into this construction and process account and if you look at the the items that are used and you know there's quite a few items when you start talking about general contracting but you'll notice that under the cost of goods account just about everything points to construction and process right so every time you pay for materials or every time you pay a subcontractor you're going to use one of these items and as a result that that that expense is going to flow to this balance sheet account called construction and process now let me just show you one here's one called countertop materials and you can see that this box is checked and it is important that this box be checked in all of your items when you're trying to do job costing because you again you want to use these items on checks or bills or credit card charges and when you have this box expanded and you you specify the expense account in this case construction process that's where that expense will flow to if I did this okay if I had it set up like this all of my expenses are going to flow to this income account called construction income and we certainly do not want that because this is not income they're expenses so it's important that you have this checked and it's important that you direct those items to construction and process in this video scenario all right the reason you see a few counts here that are not directed is because their parent items of and and they don't even get they never get used to organizational items in other words so if I were to show you this by name you would see there's site work but it says parent item do not use and then under that we have site work materials and site work arborists site work cleaning so cleaning Arbus materials all these are sub accounts of site work these are the ones that you would use never the parent item so I didn't really care if these pointed to construction and process in fact having them point to cost of goods allows me to see if they ever accidentally get used because now all of a sudden they'll show up in kundur cost of goods sold on a profit loss and I would know there's something going on there if I saw that okay and so one of the things that will often see now is that there'll be an estimate created for a project okay and here's what I created it's just barely skimming the surface of everything you know that would be involved but I just wanted to give you an idea so you see I have things like the land or the lot purchase you know if you're buying a lot to build say a spec home on and and then I have plans and permits and again I just have a handful of items here okay notice that I'm not showing any markup here and that's fine in this case and I am and I'm not obviously I am making this video for a specific client but my rationale is that there's probably a lot of people that could that could learn from this and so while this is client specific there's a lot of generalities here as well that would apply so in this case all of the all my client really cares about is how much did the homes sell for okay so you can see that's where I've actually got the markup so they're expecting and this is not a real home but in this scenario there we're saying the homes going to sell for $250,000 and in this case we've got eighty seven thousand two hundred yeah I'm sure we wish we could make that much money building the house if that was the case I would probably become a general contractor although in anyway I digress so again this are these are my expected expenses to build the home okay and again there'd be a lot more if we this is a real scenario and then this is my expected income from it okay now as a result of that I can come over here and I can let's see let's pull up a report job profitability detail report now let me do reports let me do job estimate versus actuals detail and I'll select this project right here okay so you can see here are my estimated cost okay and here are my actual cost now so far all I have is the land purchase or the lot purchase okay its lot seven alright and I don't have any revenue recognized yet so as you let's say that you know you start everything let's we'll start with building permits okay and I don't know what County pinehearst is in so I'll just go New Hanover County whoever the entity would be where you would get building permits from and let's say that we need to pay seventy eight hundred dollars sorry for building permits and we want to associate that with lot seven okay that's what's going to drive cost showing up is when we associate it with lot seven so if I save that now you can see now we estimated 8,000 our actual cost was seventy eight hundred we have a two hundred dollar difference here so again every time not sometimes every time you have an expense associated with this project you're going to use an item when you write the check or when you enter the bill you're going to use post to this items okay you're going to post two items if you're entering a credit card charge banking you're going to post two items right now let me just show you what happens if you fail to do so let's say that we pay our roofing guy okay JJ's roofing roofing okay so let's say that this is indeed seven thousand dollars but I instead I post it to 1300 construction and process and I post and I associate it with lot seven okay with me so far so I have not used an item instead I've posted directly to a general ledger account well look what's going to happen now all of a sudden we've got this expense this actual cost under no item so that's QuickBooks way of saying hey you posted something but you post it directly to a general ledger account you didn't use an item so to fix that I would simply come over here and choose my roofing labor and I would get rid of this line okay now I have remedied that situation okay the no item disappears my roofing labor comes up here okay now of course when it's time to sell you know you finished the home you've sold the home and you sell it to to your customer whoever that is mr. and Miss Joe Smith okay and let's say we sell it today then we're going to we have a home sale and let's say we actually sell it for two hundred and sixty two thousand dollars maybe there was a bidding war on it okay now you can see all of a sudden okay interesting why didn't that work let's go figure that out I love real demos like this home sale home sale let's do this home it goes to construction income so that's right hmm oh I know why I know why I've got to associate it with the job this was a lot seven being sold yeah that'll fix it okay sorry about that so now you can see we had twelve thousand dollars more in revenue than we estimated this would be a good problem right but there's one more thing that we have to do now that this home has been sold and that is is we have to relieve this construction in process account of of its dollar value and and move that over to the profit and loss under cost of good so in order to do that if I drill down in this account you can see I'm seeing all kinds of projects in here so let's start by customizing this report and filtering it to just show us the name for lot seven now we're just looking at