FinTruction

Contract liability (ASC 606) and deferred revenue (legacy term) both describe money the customer has paid or been billed that the contractor hasn’t yet earned. The balance sheet position is a liability because the contractor owes the work.

When it appears. Progress bills in excess of costs and estimated earnings. Customer deposits collected in advance. Advance payments on multi-year contracts.

The mirror image is contract asset. Underbilled work is a contract asset (earned but not billed). Overbilled work is a contract liability. Both appear together on WIP schedules.

The typical construction pattern. Overbilling early (front-loading progress bills against later work) creates contract liability. As work catches up, the liability draws down and revenue recognizes.

Why it matters to lenders and sureties. Contract liability signals cash received not yet earned. Sureties watch the ratio of contract liability to contract asset: too much liability signals fast billing and slow delivery. Too much asset signals slow billing.

The WIP reconciliation. Contract liability on the balance sheet should equal the sum of overbilled amounts across active jobs from WIP. Discrepancies signal WIP is out of date or billing entries are misposted.

THE FIX:

Reclassify deferred revenue to contract liability under ASC 606. Same position, updated terminology.

Reconcile contract liability to overbilled amounts on WIP monthly. Mismatches signal WIP or billing errors.

Watch the contract liability to contract asset ratio. High liability signals aggressive billing; sureties notice.

Draw down contract liability as work is completed. Sitting balances at closeout mean billing wasn’t reconciled.

Coordinate terminology with CPA at year-end. Old terminology on new financials creates confusion.

We do a free 48-hour audit of your construction books. We review what you’ve got, flag where you’re exposed, and send back what it’s actually costing you, within 48 hours.

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This content is for educational purposes only. Every business is different. Before making any changes to your books, reach out to us for guidance specific to your si

Union contractors operate under CBAs requiring per-hour fringe contributions to specific funds. Each fund is a separate trust with separate governance.

The four buckets. Health and welfare (medical, dental, vision). Pension (DB or DC). Apprentice training. Vacation and holiday.

Why separate accounting matters. Each fund audits contractor remittances against reported hours. A “Fringe Expense” catchall makes it impossible to prove per-fund contributions match hours. Auditors assume the highest per-hour rate, which creates a bill.

Delinquency exposure. If any fund goes unpaid past the CBA deadline (15-30 days after month-end), the fund sues under ERISA §502(g)(2) for unpaid contributions, interest, liquidated damages often 20%, and attorney fees. Many CBAs also give the union a right to withhold labor.

Withdrawal liability. A signatory who stops contributing to a multi-employer pension owes an allocated share of the fund’s unfunded vested benefits. Often the largest number in union contracting; triggers on exit, sale, or cessation of covered work.

The account structure. Separate expense accounts (Health, Pension, Training, Vacation Fringe) and separate liability accounts. Each pay period debits expense, credits liability; each remittance reverses.

THE FIX:

Set up four separate expense and liability accounts per fund.

Post fringe contributions per fund per pay period. Catchall creates audit risk.

Reconcile liability balances to fund statements monthly.

Pay each fund by CBA deadline. Delinquency triggers ERISA §502(g)(2) collection with interest, liquidated damages, and attorney fees.

Get a withdrawal liability estimate before any exit, sale, or change in union work.

Retain fund contribution records for 6 years minimum under ERISA §107.

We do a free 48-hour audit of your construction books. We review what you’ve got, flag where you’re exposed, and send back what it’s actually costing you, within 48 hours.

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This content is for educational purposes only. Every business is different. Before making any changes to your books, reach out to us for guidance specific to your situation.

Change orders on a construction job move through a paper trail: field-initiated CO request, owner approval, PM pricing, bookkeeper invoicing. Every hand-off is a place work gets lost.

Where the gap opens. PM prices the CO but doesn’t push it to the bookkeeper. Bookkeeper doesn’t know the CO is approved because the paperwork sits on the PM’s desk. Owner signs off verbally but no signed CO ever gets issued. Work happens, invoice doesn’t.

The CO log. Every job needs a running log with CO number, date requested, date approved, pricing, and invoice number when billed. Log entries with no invoice number are the reconciliation target.

Monthly reconciliation. At month-end close, pull the CO log for each active job. Compare against invoiced COs in QBO. Every CO on the log should have an invoice number. Gaps get chased that month, not at closeout.

Why it matters at closeout. Unbilled COs become disputes. The owner argues scope was included; the PM’s notes are thin. What was $50K of value becomes $20K of collection after the negotiation.

The three roles. PM owns the CO log during the job. Bookkeeper owns the invoice reconciliation at close. Owner or controller signs off before the job closes.

THE FIX:

Maintain a CO log per active job. CO number, date requested, date approved, pricing, invoice number.

Reconcile CO log to invoiced COs at every monthly close. Gaps get chased that month.

Require the PM to push approved COs to bookkeeping within 48 hours of owner sign-off. Paperwork on a desk becomes unbilled revenue.

Sign off on CO reconciliation at job closeout. No open CO items; every CO has an invoice.

Track CO gross margin separately from base contract. COs often price higher; segregating shows the true contribution.

We do a free 48-hour audit of your construction books. We review what you’ve got, flag where you’re exposed, and send back what it’s actually costing you, within 48 hours.

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This content is for educational purposes only. Every business is different. Before making any changes to your books, reach out to us for guidance specific to your situation.

Cost codes are how you tag every dollar of job cost so reports can slice by category. The right level of detail depends on business size, job complexity, and reporting needs.

Three-digit codes (roughly 10-30 codes total). Simple structure: Labor, Materials, Subs, Equipment, Other. Works for small contractors under $2M revenue with straightforward jobs. Any more segmentation and PMs won’t code consistently.

Five-digit codes (roughly 50-150 codes total). Segments by trade or scope: framing, electrical, plumbing, HVAC, finishes. Standard for mid-size residential and light commercial ($2M-$15M). Enough detail to see where cost overruns come from without drowning field crews in code-lookup.

CSI MasterFormat (49 divisions, thousands of possible subcodes). Commercial construction standard. Works for large commercial contractors, GCs bidding public work, and anyone whose customers require MasterFormat coding. Overkill for a residential remodeler.

The over-segmentation trap. Adding codes doesn’t help unless PMs code to them consistently. A 200-code system with 40 codes actually used produces the same information as a 40-code system.

Migration between systems. QBO doesn’t automate. Migration happens forward: new jobs on new codes, old jobs stay on old codes through closeout.

THE FIX
Match taxonomy to business size. Three-digit under $2M, five-digit for $2M-$15M, CSI for commercial or if customers require it.

Cap total codes at what PMs will actually use consistently. 40 well-used codes beats 200 partially-used codes.

Migrate forward, not backward. New jobs on new codes; old jobs finish on old codes.

Review code usage quarterly. Codes with zero postings for a year get deactivated.

Train PMs on the code structure before rollout. Coding discipline is what makes the taxonomy work.

We do a free 48-hour audit of your construction books. We review what you’ve got, flag where you’re exposed, & send back what it’s actually costing you, within 48 hours.

Comment CLEANUP & we will DM you the details.

This content is for educational purposes only. Every business is different. Before making any changes to your books, reach out to us for guidance specific to you

QBO’s Custom Reports feature lets you take a standard report, filter and format it for your
specific need, and save it under a name for one-click running later. For construction, six
reports do most of the work.

Report 1: WIP schedule. Built from Project Profitability with cost-to-date, estimated total
cost, and contract value columns. Reconciles to the balance sheet contract asset and liability.

Report 2: Job P&L by project. Project Profitability filtered to active jobs. Shows margin per
job for management review.

Report 3: Retention aging. Custom Report from Invoices filtered on the Retention Receivable
account, aged by invoice date.

Report 4: AR aging with retention broken out. Standard AR aging modified to separate the
retention line from regular AR.

Report 5: Covenant compliance snapshot. Custom Summary Report pulling working capital,
equity, and any debt-to-equity ratios the loan agreement requires.

Report 6: Backlog summary. Custom Report from Estimates filtered on open contract value
not yet billed.

Setup once, run monthly. Each report is saved under a memorable name in Reports > Custom
Reports so anyone in the office can run them without rebuilding.

THE FIX:
Build the six saved reports once. WIP, Job P&L, Retention aging, AR aging with retention,
Covenant snapshot, Backlog summary.

Save each under a clear name in Custom Reports. Anyone in the office runs them, not just the
bookkeeper who built them.
Group saved reports into a “Monthly Close” folder in QBO Advanced. Runs the whole
package with one click.

Update the covenant snapshot report when loan agreements change. Old covenant math on
new agreements creates false compliance signals.

Confirm QBO Plus minimum for Custom Reports. Simple Start and Essentials don’t support
the customization these need.

We do a free 48-hour audit of your construction books. We review what you’ve got, flag
where you’re exposed, and send back what it’s actually costing you, within 48 hours.

Comment “CLEANUP” and we will DM you the details.

This content is for educational purposes only. Every business is different. Before making any
changes to your books, reach out to us for guidance specific t

Construction AR is different from most industries because retention is baked in, progress bills lag work, and the customer often has a legitimate reason for delay. The collection conversation acknowledges that while still getting paid.

30 days. Status check, not a collection call. “Just following up on invoice 1247. Wanted to confirm you received it and if anything is holding up processing.” Tone is friendly. The goal is catching problems early (missing PO number, dispute on scope) before they age further.

60 days. Documented follow-up backed by prompt payment act rights. “Invoice 1247 is 60 days out. Under [state] prompt payment act, payment was due at X days with interest accruing at Y%. When will we see payment?” If they cite a dispute, escalate to the dispute resolution process.

90 days. Escalation. Owner-to-owner call. Include mechanic’s lien prep and prompt payment interest claim. State acts typically set deadlines of 30-45 days on private work and 30 days on public work, with interest at 1-2% per month. Federal Prompt Payment Act covers federal jobs.

The lien clock. Most states require preliminary notice within a window after starting work, and lien filing within a window after last work. Missing either loses lien rights even if the debt is legitimate.

THE FIX:

Run 30-day calls as status checks. Catch problems early.

Cite prompt payment act deadlines and interest on 60-day calls. Interest at 1-2% per month accrues automatically.

Escalate 90-day balances to owner-to-owner with mechanic’s lien prep on the table.

Track lien notice deadlines per state per job. Missing preliminary notice or lien filing windows loses rights.

Document every collection call. Who, when, what they said, what they committed to.

We do a free 48-hour audit of your construction books. We review what you’ve got, flag where you’re exposed, and send back what it’s actually costing you, within 48 hours.

Comment “CLEANUP” and we will DM you the details.

This content is for educational purposes only. Every business is different. Before making any changes to your books, reach out to us for guidance specific to your situation.

The IRS split what used to be one form (1099-MISC) into two forms in 2020: NEC for nonemployee compensation and MISC for everything else. Contractors deal with both because they pay subs (NEC) and often pay rent for equipment yards, office space, or storage (MISC).

1099-NEC covers services. Subs, independent contractors, consultants, professionals paid $600+ for services. Report the gross amount paid in Box 1. Due to the recipient and the IRS by January 31.

1099-MISC covers non-service payments. Rents in Box 1. Royalties in Box 2. Attorney gross proceeds in Box 10. Due to the recipient by February 15 for most boxes. Due to the IRS by February 28 (paper) or March 31 (electronic).

Who doesn’t get a 1099. Payments to corporations (with exceptions for attorneys and medical providers). Payments made via credit card or third-party processor (those get reported on 1099-K by the processor). Payments under $600 total for the year.

The W-9 discipline. Every vendor gets a W-9 before their first payment. The W-9 tells you their EIN or SSN, entity type, and legal name. Without a W-9 on file, you’re required to backup withhold at 24% until you get one.

THE FIX:
Collect W-9 from every new vendor before the first payment. No W-9, backup withhold at 24%.

File 1099-NEC for subs, consultants, and other service providers paid $600+. Due January 31.

File 1099-MISC for rents, royalties, and attorney gross proceeds. Recipient copy due February 15 for most boxes; IRS copy due Feb 28 (paper) or Mar 31 (electronic).

Skip 1099s for corporations (except attorneys and medical). Skip payments via credit card.

Reconcile 1099 totals to your QBO expense accounts at year-end close. Mismatches signal missing W-9s.

We do a free 48-hour audit of your construction books. We review what you’ve got, flag where you’re exposed, and send back what it’s actually costing you, within 48 hours.

Comment “CLEANUP” and we will DM you the details.

This content is for educational purposes only. Every business is different. Before making any changes to your books, reach out to us for guidance specific to your situation.

Sales tax on construction is one of the messier areas of state tax law because it treats contractors as either consumers or resellers of materials depending on the state and the job.

The two models. Consumer states treat the contractor as the end consumer of materials. Contractor pays sales tax to the supplier, doesn’t charge the customer. Reseller states treat the contractor as reselling. Contractor buys tax-exempt with a resale certificate, charges sales tax to the customer on the full contract or materials only per state rules.

Contract type matters as much as state. Texas splits by contract type: lump-sum contractors pay tax at purchase and don’t charge the customer on labor for residential remodel; separated contractors use resale certificates and charge the customer tax on materials. Same state, different treatment based on how the contract reads.

Residential vs commercial vs public. Many states tax the same work differently by end-use. Public projects are often tax-exempt. Residential remodel is treated differently than new residential construction in some states.

Multi-state contractors carry the highest risk. Three states means three structures; getting one wrong compounds fast.

THE FIX:

Pull your state’s sales tax rules for the specific job type and end-use. Don’t assume last state’s rules apply.

Get resale certificates set up if your state treats you as a reseller. Buying tax-exempt requires the certificate on file.

Bill sales tax correctly per state rules and contract type. Lump-sum vs separated changes the invoice structure.

For multi-state work, document rules per state per job type before you bid. Sales tax structure affects gross margin.

Reconcile sales tax collected vs remitted at every filing. Discrepancies mean the invoice tax rate is wrong.

We do a free 48-hour audit of your construction books. We review what you’ve got, flag where you’re exposed, and send back what it’s actually costing you, within 48 hours.

Comment “CLEANUP” and we will DM you the details.

This content is for educational purposes only. Every business is different. Before making any changes to your books, reach out to us for guidance specific