Chart of Accounts Setup for Contractors
Most contractors we onboard in Montana have a chart of accounts that lumps every expense into 'Supplies' or 'Materials.' You cannot run a contracting business that way. Here's how to structure your COA so you actually know which jobs made money.
The three-bucket structure
Direct job costs (COGS): materials, subcontractors, equipment rental for a specific job, permits, direct labor. These vary with each job.
Indirect job costs: shop supplies, small tools, vehicle fuel, field-supervisor salaries, workers' comp on field crews. These support all jobs but aren't tied to one.
Overhead: office rent, office salaries, marketing, accounting, general insurance. These exist whether you're building or not.
Suggested COGS accounts
5000 Materials — Framing / Concrete / Finish (break out by trade if it matters).
5100 Subcontractors.
5200 Direct Labor.
5300 Equipment Rental — Job Specific.
5400 Permits & Inspections.
5500 Job-Site Fuel & Deliveries.
Handling retention
Retention (money held back on progress billings) should live in a separate current-asset account — not buried in A/R. This lets you see at a glance how much cash is stuck in projects.
On the payables side, retention withheld from subs sits in a separate current liability account. Same reason.
Equipment and depreciation
Equipment purchases over your capitalization threshold (usually $2,500) go to fixed assets, not expense. Section 179 or bonus depreciation writes them off at tax time.
Track equipment by asset in your books — trying to depreciate a lumped 'Equipment' balance is how you end up with a $200,000 unreconciled depreciation schedule.
Class or location tracking
Use QuickBooks Classes (or Xero Tracking Categories) for each active job. That's what makes a P&L by job possible — the real reason to structure a COA this way.
A quick disclaimer
This article is general information for Montana small business owners, not tax, legal, or accounting advice for your specific situation. Rules change, and how they apply depends on facts we don't know about you. Before acting on anything you read here, talk to a qualified professional. If you're a Montana business owner and want a real conversation about your books, payroll, or tax, that's what Marlow Accounting is here for — call 406-290-1214 or schedule a discovery call.