The best chart of accounts for a contractor separates direct job costs from overhead. That structure is what allows you to see profitability by project instead of just business-wide totals.

Generic QuickBooks setups don’t work for construction. The default accounts treat every business the same, lumping labor, materials, and subcontractor costs into categories that make job-level reporting impossible.

Direct costs are everything that goes into completing a project. Labor, materials, subcontractors, equipment rental, permits. These should live in Cost of Goods Sold accounts, broken out by type. When you pay your crew, that expense should hit a direct labor account. When you buy lumber for a framing job, it goes to materials. When you pay a plumber, it goes to subcontractors. Each category gets its own account so you can see where job costs actually come from.

Overhead is what keeps the business running regardless of job volume. Office rent, insurance, your own salary if you’re not working on jobs directly, vehicle payments, advertising. These belong in operating expenses, completely separate from direct costs.

This separation is what makes construction job costing possible. When you run a job profitability report, the system pulls direct costs coded to that project and compares them to revenue. If labor is mixed in with overhead expenses or materials are buried in a general supplies account, the report tells you nothing useful.

Income accounts should reflect how you work. If you do both new construction and remodels, consider separate income accounts for each. Same for residential versus commercial. The goal is spotting patterns in your revenue without digging through individual invoices.

Keep the total number of accounts manageable. Most contractors do well with 30 to 50 accounts. More than that and people stop coding things correctly because it takes too long to find the right account. Every account should have a purpose. If you’re never going to analyze something separately, it doesn’t need its own line.

The chart of accounts is foundation work. It enables useful reporting but doesn’t replace the discipline of coding every transaction to the right job and cost category. A well-designed structure sitting on top of sloppy data entry produces the same bad reports as no structure at all.

If you’re setting up from scratch or fixing a system that never worked right, our bookkeeping services in American Fork can help you build a chart of accounts designed for how contractors actually operate.