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Activity Codes for Estimating and Job-Costing

So far we’ve been talking about a numbering system for your accounting software, but you also need a similar scheme for estimating and job-costing.

As mentioned above, Appendix E provides a detailed breakdown of direct job costs, using its own four-digit numbering system that more or less follows the chronology of a typical project. The major categories, which are broken out in detail, are:

1000: Preparation Preliminaries

2000: Excavation and Foundation

3000: Rough Structure

4000: Full Enclosure (Dry-in)

5000: Finishing Trades

6000: Completion and Inspection

This ledger was originally developed to capture direct-cost details in the “work in progress” account 1430 in the assets section of the general ledger. But I’m suggesting that you put it to another use: Take advantage of the well-defined numbering system as a ready-made way to set up your estimating and job-costing, and even your scheduling. If your estimates and job-cost reports always start with 1000 series items for “Preparation Preliminaries” and progress to the 6000s for “Completion and Inspection,” you’ll be ahead of the game.

Indirect costs. Sometimes you’ll want to include indirect costs like supervision or dumpsters on a project estimate — but there’s a numbering conflict you’ll need to iron out. Appendix F is numbered as a 4000 series (so the codes will work in the general ledger), but Appendix E already has a 4000 category, “Full Enclosure.” So I simply renumber Appendix F as 9000 and tag it on to the list of activity codes. So 4000–4090, “Salaries and Wages,” becomes 9000–9090, and so forth:

9000–9090: Salaries and Wages

9100–9190: Payroll Taxes and Benefits

9200–9290: Field Office Expense

9300–9390: Field Warehouse and Storage Expense

9400–9490: Construction Vehicles, Travel, Entertainment

9500–9590: Construction Equipment

9600–9690: Maintenance of Unsold Units and Units Under Construction

9700–9790: Warranty and Customer Service

9800–9890: Depreciation Expense

9900–9990: Other

What happened to 7000 and 8000? Note that the 7000 and 8000 series are not used. This is because NAHB has reserved those numbers for future use (unspecified at this time). It’s a good idea for your financial systems to match industry protocols, so I suggest skipping 7000 and 8000 and using 9000 for indirect expenses in the list of activity codes.

Adapting NAHB Accounts To Your Accounting Software

While practically every accounting and estimating software out there has its own particular way of organizing and coding financial data, most of them can be adapted to take advantage of NAHB’s account structure. Note that NAHB’s four-digit structure does not take full advantage of the computer, so in most cases you will also be converting from four to at least five digits, and possibly more.

The illustration above shows an out-of-the-box QuickBooks for Contractors chart of accounts. As you can see, almost nothing matches NAHB recommendations. No problem: QuickBooks allows you to renumber and rename accounts to suit your own purposes.

While it may seem like a lot of work to set up your software to follow the NAHB account codes, the payoff will be substantial. For one thing, your reporting will be in a format that can be more easily compared to NAHB industry benchmarks and recommendations. And perhaps more important, you’ll be better able to communicate with accountants, business consultants, and other contractors who are familiar with those best-practice benchmarks.

JLC contributing editor Joe Stoddard moderates the Business Technology forum at jlconline.com.