If you’re in the construction business, you already know the importance of structure. Just like a solid foundation is essential for a safe and functional building, a clean and organized chart of accounts (COA) is essential for accurate bookkeeping. In this article, we’ll be doing a chart of accounts for contractors deep dive to help you learn how to better handle your books.
Whether you’re a general contractor, electrician, plumber, or HVAC pro, your COA is what makes sense of all the financial activity in your business. But if your COA is messy—or worse, not customized for the way you work—you’re flying blind when it comes to profitability, taxes, and long-term growth.
In this post, we’re going to break down what the chart of accounts is, why it matters, how to build one specifically for contractors, and how to use it to make smarter business decisions. We’ll also cover common pitfalls and how to avoid them. Let’s dig in.
What Is a Chart of Accounts for Contractors Deep Dive?
At its core, a chart of accounts is simply a list of all the accounts you use to record financial transactions. Each transaction in your business—whether it’s buying materials, billing a client, or paying subcontractors—gets recorded in one of these accounts.
The COA is typically broken down into five main categories:
- Assets – What your business owns
- Liabilities – What your business owes
- Equity – The owner’s stake in the company
- Income (Revenue) – Money coming in
- Expenses – Money going out
Each account is assigned a number and a name. These numbers make it easier to organize and sort accounts in your accounting software.
Why Contractors Need a Custom Chart of Accounts
While many bookkeeping templates come with a standard COA, a “one-size-fits-all” setup doesn’t work well for contractors. You have unique accounting needs—like tracking job costs, dealing with retainage, handling project-based billing, managing equipment depreciation, and more.
Here’s why a generic COA falls short:
- It hides the true cost of each job
- It doesn’t break out labor, materials, and subcontractors
- It makes cash flow harder to predict
- It complicates tax preparation
By doing a chart of accounts for contractors deep dive, you can see which projects are profitable, track job performance in real time, and simplify everything from budgeting to tax season.
How to Structure a Chart Of Accounts for Contractors Deep Dive
Let’s take a look at how you can build out your COA so it works for your construction business.
1. Use Logical Numbering
A typical numbering scheme looks like this:
- 1000–1999: Assets
- 2000–2999: Liabilities
- 3000–3999: Equity
- 4000–4999: Income
- 5000–5999: Cost of Goods Sold (COGS)
- 6000–6999: Operating Expenses
Using ranges leaves room to grow. For example, if you use 5100 for materials, you can add 5110 for lumber and 5120 for drywall later.
2. Break Out Job Costs
One of the biggest benefits of a customized COA is job costing. Break out direct costs like this:
Revenue
- 4000 – Contract Revenue
- 4010 – Residential
- 4020 – Commercial
- 4030 – Service & Maintenance
COGS (Direct Costs)
- 5000 – Direct Labor
- 5100 – Materials
- 5200 – Subcontractor Payments
- 5300 – Equipment Rental
- 5400 – Permits & Inspections
This structure makes it easy to run a Profit & Loss by Job report to see exactly what each project earns and costs you.
3. Track Retainage Separately
Retainage—money withheld until project completion—is common in construction but rarely tracked properly.
Add these accounts:
- 1300 – Retainage Receivable
- 2300 – Retainage Payable
This ensures you don’t overstate revenue or forget money owed to you.
4. Account for Equipment & Depreciation
Heavy machinery and tools are big-ticket assets. Record both their value and depreciation:
- 1600 – Equipment
- 1610 – Accumulated Depreciation – Equipment
- 6300 – Depreciation Expense
This setup helps track your true costs and supports better tax reporting.
Extra Layers: Use Classes, Locations, or Jobs
Most accounting software (like QuickBooks Online) allows you to add tags, classes, or jobs. These tools add another layer of detail without bloating your COA.
Examples:
- Use classes to track crews or service types
- Use locations to separate offices or regions
- Use jobs to track costs and revenue per customer/project
The result? Detailed reports that help you make better decisions without hundreds of accounts cluttering your COA.
Best Practices for a Clean and Functional COA
To keep your chart of accounts effective over time:
✅ Keep It Clean
Too many accounts make reporting confusing. Aim for 30–80 core accounts.
✅ Leave Room for Growth
Number in intervals (e.g., 5100, 5110, 5120) so you can insert new ones as you grow.
✅ Standardize Names
Use consistent naming: “Materials – Residential” vs. “Res Materials” helps avoid mistakes.
✅ Document Everything
Create a COA manual that defines how and when to use each account. Great for onboarding or working with an external bookkeeper.
✅ Clean It Up Quarterly
Review unused accounts and consolidate or archive them to keep things neat.
Common COA Mistakes Contractors Make
Mistake #1: Using the default COA from accounting software
Fix: Customize it from the start.
Mistake #2: Too many accounts for every project or vendor
Fix: Use tags or jobs instead of adding new accounts.
Mistake #3: Forgetting to track retainage or depreciation
Fix: Create dedicated accounts and review them monthly.
Mistake #4: Not aligning with tax reporting
Fix: Set up your COA to match IRS categories (Schedule C, 1120S, etc.) so tax time is simpler.
How a Clean COA Translates Into Better Business Decisions
Your chart of accounts isn’t just for your bookkeeper or CPA—it’s for you as the business owner. A solid COA helps you:
- Understand job profitability
- Forecast cash flow
- Budget smarter
- Track overhead vs. direct costs
- Spot problems early
- Simplify year-end taxes
It becomes your financial dashboard—not just a place to dump transactions.
How to Get Started or Rebuild Your COA
If your chart of accounts is already in use, don’t worry—it’s never too late to clean it up. Here’s a step-by-step approach:
- Export your current COA and review what’s working (and what’s not).
- Identify gaps—do you have the right job cost and retainage accounts?
- Create a new COA layout that fits your business.
- Map old accounts to new ones so you don’t lose historical data.
- Update your accounting software—ideally in a staging environment first.
- Train your team or bookkeeper on the new layout.
- Review quarterly to keep it optimized.
If this feels overwhelming to you, reach out to Aladdin Bookkeeping: Bookkeeping for Contractors for a free bookkeeping consultation. We offer both QBO Setup services as well as customization of your chart of accounts with our monthly bookkeeping packages.
Final Thoughts
Your chart of accounts is more than just a list—it’s a tool that can either make or break your financial visibility. When it’s customized for contractors and built with job costing, retainage, and equipment in mind, it becomes a powerful engine behind your decision-making.
Think of it as building the electrical panel for your business’s finances. When it’s wired right, everything flows smoothly.
Ready to take control of your numbers? Start by taking a fresh look at your chart of accounts—and watch how much more confident you feel running your contracting business.
