A chart of accounts for a building contractor
Which accounts a building contractor adds to Achekam's standard chart so materials, labour, subcontractors, plant and retention read clearly each month.
By Achekam · · 4 min read · For Construction businesses in South Africa, Nigeria, Kenya
A building contractor's income statement should answer a few blunt questions. How much went on materials? On our own labour? On subcontractors? On plant? How much of what we are owed is retention that we cannot collect yet, and how much do we hold back from others?
A general chart of accounts, set up for any small business, tends to lump those costs together. The answers are in the transactions, but nobody can read them without a spreadsheet. A little work on the chart at the start fixes that. This article suggests the accounts a contractor adds, what goes in each, and how to bring an existing chart across.
The standard chart a business starts with
When a business's books first open in Achekam, a standard chart of accounts is created for it, inside its own double-entry ledger. Accounts can be added, renamed or switched off. So you are not stuck with the defaults: keep what fits, rename what nearly fits, switch off what you will never use, and add the construction-specific accounts below.
Switch off rather than delete. An account that has been used keeps its history, and a switched-off account stays out of the way on the posting screens.
Direct costs split into materials, labour, subcontractors and plant
The single most useful change is to split cost of sales, sometimes called direct costs or contract costs, into its parts. A starting set:
| Account | What goes in it |
|---|---|
| Materials | Cement, steel, bricks, timber, finishes bought for jobs |
| Site labour | Wages and site allowances of your own workers on jobs |
| Subcontractors | Work by plasterers, electricians, plumbers and other trades |
| Plant hire | Machines hired in for jobs |
| Own plant running costs | Fuel, repairs and servicing of machines you own |
| Site establishment | Site offices, toilets, fencing, temporary power and water |
| Professional fees on contracts | Engineers or surveyors you appoint for a job |
Keep overheads, such as head office rent, office staff and vehicles that are not on site, in expense accounts below the gross profit line. The test for each cost is simple: would it go away if there were no jobs on site?
Depreciation of plant you own is not the same as plant running costs. If you keep a fixed-asset register, its monthly depreciation journal needs an account of its own; owning or hiring plant explains how the two show differently.
Retention receivable and retention payable as their own accounts
Retention is money that belongs to one side but is held by the other until the job, and often the defects period, is complete.
- Retention receivable (an asset): what clients have held back from your progress payments.
- Retention payable (a liability): what you have held back from your subcontractors.
Neither should be buried in ordinary debtors or creditors. A bank looking at your balance sheet treats retention due in a year very differently from a client invoice due next month. Your accountant can move retention into these accounts with a manual journal at each month end. Achekam refuses a journal that does not balance or is dated in a closed month, and a posted journal is corrected only by a reversal, so the movements leave a clear trail.
Why invoice income lands in one revenue account today
You will be tempted to add separate income accounts for contract work, variations, daywork and materials sold on. Add them by all means, but know this: all invoice revenue currently posts to one account, Professional Services Revenue (4100), and a line cannot name another sales account.
So if you want contract revenue and variations shown apart, someone has to move the amounts each month with a reclassification journal, based on the invoices issued. Decide whether the split is worth that monthly step. For many small contractors, splitting costs is worth far more than splitting income.
Budgets per account once the chart is settled
Once the chart is settled, set a budget per account and period and compare it with actual figures from the ledger. A budget on materials, site labour, subcontractors and plant, month by month, shows quickly when a job or the business is drifting.
Management accounts then give you an income statement for a chosen period beside the period before, and a balance sheet at period end, exportable as PDF or CSV. A well-built chart is what makes those statements readable to an owner, a bank or a bonding company, which figures to give the bank covers in more detail.
For costs per job rather than per account, contractors use job costing, a separate exercise. AccountingTools' overview of construction accounting explains job costing by contract, percentage-of-completion revenue, change orders and retainage tracking, and is a useful primer for whoever keeps your books.
Bringing an existing chart in from a spreadsheet
If your chart already lives in another package or a spreadsheet, you do not have to type it again. A business can bring in its accounts, customers, suppliers and an opening-balance journal from CSV or Excel, and the move reconciles to the cent before a second person approves the cut-over.
A sensible order:
- Map your old accounts to the new chart, including the construction accounts above.
- Import the accounts, then customers and suppliers.
- Import the opening-balance journal at the cut-over date.
- Run the trial balance, which shows each account for any period or date and says whether debits equal credits, and compare it with the old system's closing trial balance.
- Have a second person approve the cut-over.
Software businesses leaving spreadsheets go through the same steps, as moving books off spreadsheets describes.
Getting started
Print your current chart, mark each account keep, rename, switch off or add, and agree the list with your accountant before any new month is posted. A chart settled in one afternoon will save hours of reclassifying later.
General guidance only, not advice on your own circumstances. Tax and payroll rules change: check the current position with the authority or your adviser.
