Construction Chart of Accounts Subcontractor (Copy)

TL;DR: A construction subcontractor's chart of accounts must cleanly separate direct job costs (COGS) from overhead (SG&A). Direct costs are everything assigned to a specific job — field labor, materials, subcontractors, job equipment. Overhead is everything that runs regardless of job volume — officer salaries, rent, insurance, vehicles, depreciation. The most common mistake is mixing job costs into overhead or overhead into COGS, which distorts gross margin, overhead rate, and every financial decision that follows. SPM restructures the chart of accounts at the start of every engagement before any job costing is built.

The Structure

How a Subcontractor Chart of Accounts Should Be Organized

The single most important structural rule: every account in COGS must be a cost that can be assigned to a specific job. If the cost doesn't belong to a job — if it runs regardless of whether you have any work — it belongs in SG&A/overhead. That separation is what makes gross margin meaningful and overhead rate accurate.

Cost of Goods Sold (Direct Job Costs)

Field labor — wages and payroll burden for field crews

Direct materials — purchased for specific jobs

Subcontractors — work performed by subs on your jobs

Equipment costs — rental or allocated fleet cost for jobs

Job-specific permits and inspections

Fuel allocated to job equipment

Other direct costs — anything assigned to a specific job

SG&A / Overhead

Officer and owner compensation — at market rate

Project manager and estimator salaries

Office and administrative staff

Rent, utilities, and office expenses

Company vehicle fleet — depreciation and operating costs

Equipment depreciation not allocated to jobs

General liability and other business insurance

Professional services — CPA, attorney

Technology, software, and subscriptions

Common Mistakes

What Most Subcontractors Get Wrong

These are the classification errors SPM finds at the start of almost every engagement. Each one distorts gross margin in a different direction — and the distortion compounds into every financial decision the business makes.

Owner Salary in COGS

When the owner books their own compensation to COGS — or doesn't book it at all — overhead is understated and gross margin appears higher than it actually is. The overhead rate calculation then understates the real overhead percentage, and bids are underpriced accordingly. Owner compensation belongs in SG&A at market rate regardless of how it's paid.

Equipment Depreciation Mixed or Missing

Equipment depreciation is a real overhead cost. When it's posted to a balance sheet account without flowing through the P&L, overhead is understated. When it's posted to COGS as a lump sum rather than allocated to jobs, gross margin is understated. The correct treatment depends on whether the equipment is deployed to specific jobs — if so, it's COGS allocated by machine. If it runs regardless of job deployment, it's SG&A.

Personal Expenses in SG&A

Personal expenses — vehicle costs for personal use, cell phones, meals, travel — posted to SG&A inflate overhead and reduce net income. They also complicate the CPA's work at tax time and misrepresent the true overhead rate. SPM cleans these out during the migration to ControlQore and establishes clear coding policies going forward.

The Right Foundation

How SPM Structures the Chart of Accounts for Every Client

Chart of accounts restructuring is Step 1 of every SPM engagement — before job costing is built, before WIP reporting is set up, before anything else. If the foundation is wrong, everything built on top of it is wrong.

Audit the existing chart of accounts for misclassifications. Every account is reviewed. Personal expenses in SG&A are removed. Owner compensation is set to market rate and coded correctly. Equipment costs are separated into job-allocated and overhead categories. The cleaned chart of accounts becomes the foundation for ControlQore.

Build COGS sub-accounts that match the job costing structure. For a civil contractor: labor by trade, materials by category, equipment by machine, subcontractors by scope. For a concrete contractor: labor by phase, formwork, rebar, pump, concrete, finishing. The COGS structure in the chart of accounts matches the cost code structure in ControlQore — so job costing and financial reporting use the same buckets.

Separate retainage receivable from regular AR. Retainage is a different asset than current AR — it's not collectible until project completion. Blending it into regular AR overstates working capital and gives a false picture of current cash availability. Retainage receivable gets its own balance sheet account.

Migrate historical data with the corrected structure. SPM migrates transactions back to the start of the last taxable year using the corrected chart of accounts. Historical financial statements are restated with proper classification. The first time the client sees a correctly structured P&L, the gross margin and overhead rate are often significantly different from what they expected.

FAQ

Frequently Asked Questions

How should a construction subcontractor structure their chart of accounts?

A construction subcontractor's chart of accounts should separate direct job costs from overhead (SG&A) clearly — with no blending between the two. Direct costs include everything that belongs to a specific job: labor, material, subcontractors, equipment, and other direct costs. Overhead includes everything that runs regardless of job volume: officer salaries, rent, insurance, vehicles, depreciation, and administrative costs. The most common mistake is mixing job-specific costs into overhead accounts — which understates gross margin and overstates overhead rate.

What is the standard chart of accounts for a construction company?

A standard construction subcontractor chart of accounts includes: Income (revenue by job or revenue type), Cost of Goods Sold (direct labor, direct materials, subcontractors, equipment costs, other direct costs), Gross Profit, Operating Expenses/SG&A (officer compensation, admin salaries, rent, insurance, vehicle fleet, depreciation, professional services, marketing), Operating Income, Other Income/Expense (interest, owner distributions), and Net Income. The key structural rule: every account in COGS must be a cost that can be assigned to a specific job.

What accounts should be in COGS vs overhead for construction?

COGS/direct costs: field labor (wages + burden), materials purchased for jobs, subcontractor costs, equipment rental for specific jobs, job-specific insurance, permits, fuel allocated to jobs. Overhead/SG&A: officer and owner compensation, project manager salaries, office staff, estimator, rent and utilities, company vehicle fleet, equipment depreciation, general liability insurance, professional services (CPA, attorney), marketing, technology and software. The test: if the cost stops when there are no jobs, it's COGS. If it continues regardless of job volume, it's overhead.

Why does the chart of accounts matter for job costing?

The chart of accounts is the foundation that job costing runs on. If direct costs are misclassified into overhead accounts, job costing shows artificially low direct costs and the gross margin on every job looks higher than it actually is — while overhead looks inflated. When an SPM client migrates from QuickBooks to ControlQore, chart of accounts restructuring is always the first step — it fixes the classification errors that distort every number downstream.

Who can set up a construction chart of accounts correctly?

A fractional CFO with construction-specific experience, or a CPA who specializes in construction accounting. Generic bookkeepers and most accounting software default templates don't separate construction COGS from overhead correctly — they use a general product-based template that doesn't reflect how construction companies generate revenue. SPM restructures the chart of accounts at the start of every engagement as part of the ControlQore setup.

Construction Chart of Accounts —Built for Subcontractors.