Job Costing
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Job Costing Terms

Accrual Accounting: To account for income that has not been received or expenses that have not been paid. This is the process that accomplishes the accounting ideal of recognizing income and expenses in the period they are actually incurred to calculate an accurate “net profit” for that period.

Billings in excess of costs: To account for billings that are in advance of what has actually been completed or earned on a job. This is a necessary step to adjust income to what has actually been earned on an “accrual” basis.

Budget or Job Budget: In job costing, the estimate is used, line by line, as the budget for the job. Each step in the job is budgeted and actual expenses are accumulated against that budget to monitor cost variances.

Cash Basis Accounting: To account for income only as it is received and to recognize expenses only when they are paid. While this is a “simple” way of keeping books, it is unreliable as an indicator of profitability because what is owed to you and by you is ignored.

Change Order: A legal document that amends the original construction contract for work later added or deleted from the original agreement. Job costing often “discovers” where a Change Order should be obtained, covering the additional costs of changes in the plans.

Completed Contract Method: To account for all income and expenses for a job at the end of the job instead of recognizing income and expenses as the job progresses.

Cost Codes: The numbering systems used for budgeting each phase of the job. The number 3000 is for concrete expense, with 3000L for labor, 3000M for materials, 3000S for subcontracts, 3000E for equipment, and 3000G for other expenses. The industry standard Cost Code numbering system was devised by the Construction Specification Institute (CSI) and is widely adopted in the industry. Cost Codes may have additional letters for Group Codes. (See Group Codes.)

Cost to Complete: An estimate of the amount of money it will take to complete a particular phase of a job. Adding this to the cost to date for a phase results in a total cost for that phase. This number is compared to the budget to determine if there is a potential cost variance.

Costs in excess of billings: To account for costs that have been accrued, but have not yet been billed to the customer. This is a necessary step to adjust income to what has actually been earned on an “accrual” basis.

Group Codes: An appendage to a Cost Code to differentiate floors in a building, units in an apartment, or subcontractors from each other.

Field Reports: A report that lists each phase of each job with room for a project manager to indicate the respective cost to complete or percentage of completion for each phase. This information is then used to calculate the total projected cost for each phase and compares that number with the budget to calculate potential cost variances.

Job Costing: The accounting tool that allows builders to monitor costs of each phase of each job, with reports that show cost variances. It is “the right tool for the job” when it comes to managing a construction business.

Loss: When expenses exceed income. Too many contractors lose money on jobs because they do not monitor costs as they are incurred, waiting until the job is over to determine if they made a profit or suffered a loss. By then, it is too late.

Percentage Method: To account for a job based on how much as been completed. The calculation multiplies each phase of the job with its respective budget by its percentage of completion to get a total percentage completed. This is an Accrual Accounting process.

Profit: When income exceeds expenses. Without a profit, the business will not be able to stay in business.