Construction Bookkeeping: Job Costing, WIP Schedules and Retainage#
A contractor's bank balance says very little about whether a job made money. Cash arrives in lumps, bills are paid weeks after the work, and part of every progress payment is held back as retainage until the job closes. If the books only follow the bank, the owner sees a profit and loss that swings with payment timing instead of job performance.
Good construction books answer three questions for each job: what has it cost so far, how much have we billed, and how much of the contract is actually earned. This article covers how those entries work, what an offshore team can carry out inside your client's QuickBooks Online file, and what should stay with your firm.
How the transactions flow#
Costs by job. Every vendor bill, card charge, subcontractor payment and material purchase needs a job tag at the moment it is recorded. Labour is the usual gap. If payroll is run elsewhere, the labour cost per job usually comes from timesheets or a payroll journal supplied by the client. The job tag can be a class, a location or a project, whichever the file already uses. We follow the structure in place rather than rebuild it.
Progress billing. Large jobs are billed in stages against a schedule of values or a percent complete. Each invoice shows the amount billed this period, the total billed to date, and the amount held back.
Retainage. The held-back amount is still owed to the contractor, but not yet collectable. It should not sit buried in ordinary receivables. We record it in a separate retainage receivable account so the receivables aging shows only what is genuinely due. The same logic applies on the other side: when your client holds back retainage from its own subcontractors, that is a retainage payable.
WIP. A work in progress schedule compares, job by job, the contract value, the cost to date, the estimated cost to finish, the amount billed and the amount earned. The gap between earned and billed is either an underbilling (an asset) or an overbilling (a liability).
Which revenue method applies#
Contractors can recognise revenue in different ways, for example by percentage of completion or on completion of the contract. The right method depends on the client, the contract terms and the jurisdiction, and it affects the tax return as well as the financial statements. That decision belongs to your firm's CPA or accountant. We record and schedule on the basis you tell us to use, and we do not choose it.
A worked example (illustrative)#
All figures below are illustrative round numbers.
A contractor signs a job for 100,000. The estimated total cost is 80,000. At month end:
| Item | Amount |
|---|---|
| Costs incurred to date | 50,000 |
| Billed to date | 40,000 |
| Retainage held by customer (10% of billing) | 4,000 |
| Cash received | 36,000 |
If your firm has chosen a cost-to-cost percentage of completion basis, the job is 50,000 / 80,000 = 62.5% complete. Earned revenue is 62,500. Billed revenue is 40,000. The job is underbilled by 22,500, and that appears on the WIP schedule as an asset.
Two things stand out. The 4,000 retainage is receivable, but it is not due yet, so it sits outside the aging buckets. And a ledger that records revenue only when invoices go out would show 40,000 of revenue against 50,000 of cost, a loss on a job that is on track. The estimate to finish is a management judgement from the client. We record the number we are given and flag any job where cost to date already exceeds the estimate.
Why this work is hard to staff#
Contractors work under two rule sets at once. For financial reporting, the FASB staff educational paper on retainage under Topic 606 says whether retainage is a receivable or sits within contract assets "depends on whether the entity's right to payment is unconditional". It is a staff paper, not authoritative GAAP. For tax, 26 U.S.C. 460 requires the percentage-of-completion method for long-term contracts, with an exception in 460(e)(1)(B) for other construction contracts estimated to finish within 2 years where the taxpayer meets the section 448(c) gross receipts test. For tax years beginning in 2026, that limit is $32,000,000 on a 3-year average (IRS Rev. Proc. 2025-32). Rules and thresholds change; confirm the current position with the client's preparer.
This is why costs, billings and retainage must be kept job by job, so either method can be applied. Which method applies stays with the firm or the client's preparer; the bookkeeping records the data they need.
What can be handed to an offshore team#
Work we can carry out inside the file:
- Coding vendor bills, card and bank transactions to jobs
- Recording progress invoices with the retainage held back
- Tracking retainage receivable and retainage payable, and preparing a retainage aging
- Building the WIP schedule from the contract values and estimates you or the client supply
- Reconciling bank, credit card and loan accounts
- Producing a job profitability report each month
- A written summary of every adjustment
What stays with you#
- Choosing the revenue recognition method
- Setting and updating estimates to complete, change orders and contract values
- Client conversations, including disputes over retainage release
- Lien waivers, bonding and surety paperwork
- Payroll, sales tax and tax return preparation, which we do not offer
- Final review and sign-off on the financial statements
What to send#
- Access to the client's QuickBooks Online file, limited to what the work needs
- Contract list with contract value, billing terms and retainage percentage per job
- Estimates to complete, updated as often as you want the WIP refreshed
- Change order log
- Subcontract agreements and the retainage terms in them
- Timesheets or a payroll journal showing labour by job
- Bank, card and loan statements, and any pay application documents
What comes back#
- Bank, credit card and loan reconciliations
- Job profitability report
- WIP schedule
- Retainage aging, receivable and payable
- Monthly financial statements
- A written summary of adjustments, with questions listed separately
All work is done inside the client's QuickBooks Online file and reviewed by a Chartered Accountant before it is returned to you.
Month-end review checks#
Run these before the WIP schedule goes to the owner.
- Does every cost line carry a job tag? Untagged costs are the first thing to clear.
- Are there costs on jobs that have been closed, or billing on jobs with no contract on file?
- Does retainage receivable agree to the retainage shown on each pay application?
- Is any retainage past the release date in the contract?
- Does cost to date exceed the estimate to finish on any job?
- Are there overbillings that look large against the job's cost to date?
- Do deposits and customer payments match the invoices they were applied to?
- Are subcontractor bills held back by the correct retainage percentage?
- Do bank, card and loan reconciliations agree to statements?
Frequently asked questions#
Can you set up job costing if the client has never used it? Yes, as part of a cleanup or setup engagement, using the file's existing class, location or project structure where it fits. We agree the structure with you first, since it affects every later report.
Who decides how to treat retainage and revenue? Your firm does. Treatment varies by contract, jurisdiction and the method in use. We record on the basis you confirm and note anything that looks inconsistent.
Do you handle certified payroll or payroll processing? No. Payroll processing is not part of our work. We can code a payroll journal you supply to jobs.
What if the books are behind? We can bring past periods current first. See our monthly bookkeeping and reconciliation service and the industries we support. If you are an accounting firm sending client files, the CPA firms page explains how engagements start.
