How the Accounts Are Organized
The NAHB chart of accounts uses a four-digit numbering system in which each “thousand” is a functional category. Here are the highlights by section.
1000s: Assets. This is all the stuff your business owns, including land, buildings, equipment, vehicles, and inventory, plus cash, short- and long-term investments, and accounts receivable. The current value of any completed or ongoing spec homes or spec remodels is also an asset of the business.
2000s: Liabilities and Owners’ Equity. This is what your business owes to others or to you (owners’ equity). Accounts payable, loans, and other current or long-term liabilities against the assets you’re listing in the 1000 accounts would also go here. For example, your pickup might be worth $20,000, but because you have an $18,000 loan associated with it here, your net “equity” (another word for “ownership”) is only $2,000. Deposits from customers are recorded here as well, because your business owes those individuals the work that equals the deposits they’ve made.
3000s: Sales, Revenues, and Cost of Sales. This is where you record income from various sources, along with your direct construction costs (“sticks and bricks”) — an important category that I’ll come back to later.
4000s: Indirect Construction Costs. “Construction indirects” are all the things that are required to get the job done but that aren’t included in the labor or materials actually installed in the project. Job trailers, dumpsters, and Porta-Johns are common examples, but supervisory wages, general laborers, design fees, small tools that aren’t considered long-term assets, insurance, and job-site maintenance costs are also construction indirects. Warranty liability is booked here as well.
5000s: Financing Expenses. This category is used mostly by new-home builders for interest on loans or lines of credit for various initiation and closing costs. Remodelers might book interest paid on credit cards here, or “floor plan” fees if they’re dealers of cabinets, hot tubs, or other products and have to pay interest on inventory kept in a showroom.
6000s: Sales and Marketing Expenses. This includes sales commissions and advertising expenses, as well as any expenses attributed to maintaining a sales office, a model home, or — for a home improvement company — storefront operations.
7000s: Operating and Management Expense, Rental Operations. The 7000 accounts are really a separate record-keeping system designed to manage income and expenses from residential or commercial rental property — something many builders and remodelers dabble in.
8000s: General and Administrative Expenses: “G&A” is what most of us would think of as “overhead.” Your office rent and utilities, administrative salaries, computer equipment, software, and other technology expenses go here, as do travel and entertainment, insurance, and professional fees. G&A is also where you book your own salary.
9000s: Other Income and Expenses. Here’s where you’d book revenue and expenses from things like selling or renting your equipment, or public speaking and consulting — activities that aren’t directly related to building but that take advantage of your professional expertise. Note that the account number doesn’t address the type of account represented. Some sections contain only expense accounts, but others contain a mix of income (or asset) and expense (or liability) accounts. Your accounting software will keep track for you, but in Excel you could set up a column to indicate the type of account you’ve assigned to each number.
Off-the-shelf accounting, estimating, and scheduling systems can typically be modified to use the NAHB chart of accounts. In this example, code 3830, “building material,” (from Appendix D, “Basic Accounts for Remodelers”) is being substituted for the default QuickBooks account 50400, “Construction Materials Costs.” Because QuickBooks uses five-digit accounts, a zero has been added. Note also that a master account, 38000, “Cost of Goods Sold,” has already been created.