If you’re a contractor (construction, freelancers with large projects, agencies doing project-based work), your accounting focuses on:
- Tracking project income vs project costs
- Managing client deposits and progress billing
- Monitoring profit per project
👉 This setup is similar to freelancers—but with Cost of Goods Sold (COGS) added.
✅ Step 1: Set Up Your Income Accounts
Contract Income (Use Design Income)
Your main revenue account.
Why you need it:
- Tracks earnings per project
- Used to measure profitability
👉 You can rename:
- Design Income → Contract Income
- Or Project Revenue
Sales Return (Optional)
Why you need it:
- For refunds, discounts, or project adjustments
Not needed if:
- You rarely issue refunds
Other Income (Optional)
Examples:
- Interest Earned
- Gain/Loss on Sale of Assets
Why it’s optional:
- Keeps project income clean and separate
✅ Step 2: Set Up Your Asset Accounts
Bank
Your main account.
Why you need it:
- Tracks all incoming/outgoing cash
Accounts Receivable
Money clients still owe you.
Why you need it:
- Critical for progress billing
- Helps track unpaid project balances
👉 Very important for contractors.
Deposit (Optional)
Why you need it:
- Tracks advance payments separately
Undeposited Funds (Optional)
Why you need it:
- Helps reconcile payments before bank deposit
✅ Step 3: Set Up Your Cost of Goods Sold (COGS)
This is what makes contractor accounting different from freelancers.
Cost of Goods Sold (Contractor Expenses)
Examples:
- Subcontractor payments
- Labor directly tied to projects
- Materials used
Why you need it:
- Tracks direct project costs
- Shows true profit per project
👉 Without this, your profit will be overstated.
Purchases
Why you need it:
- Tracks materials bought for projects
Freight In and Delivery Expenses
Why you need it:
- Cost of delivering materials to project sites
✅ Step 4: Set Up Your Liability Accounts
Accounts Payable
Money you owe suppliers or subcontractors.
Why you need it:
- Tracks unpaid project costs
Unearned Revenue
Client deposits or advance payments.
Example:
- 50% downpayment before starting
Why you need it:
- Prevents recognizing income too early
- Keeps financial reports accurate
Accrued Purchases (Optional)
Why you need it:
- For costs incurred but not yet billed
Income Tax Payable
Why you need it:
- Tracks taxes owed
✅ Step 5: Set Up Your Expense Accounts
These are your operating expenses (not tied to a specific project).
Wage & Salary Expenses
Why you need it:
- For admin or non-project staff
👉 Note:
- Project labor should go to COGS, not here
Office Expenses
Why you need it:
- Supplies, software, admin tools
Rent Expenses
Why you need it:
- Office or workspace
Utilities Expenses
Why you need it:
- Electricity, internet
Travel Expenses
Why you need it:
- Site visits, inspections
Bank Charges / Stripe Fee
Why you need it:
- Payment processing costs
❌ Accounts You Usually DON’T Need (And Why)
Inventory / Finished Goods Inventory
Why not applicable:
- Materials are used per project, not stored long-term
👉 Unless you maintain a warehouse.
Manufacturing Overhead
Why not applicable:
- This is for factories, not project-based work
Complex Retail Accounts
(e.g., Sales Tax for retail-heavy setups)
Why not applicable:
- Only needed if selling products directly
Advanced FX Accounts
Why not applicable:
- Only if dealing with international projects
⚙️ Optional Advanced (Use Only If Needed)
- Retention Payable (for construction projects)
- Depreciation (equipment like tools/machinery)
- Bank Loans (project financing)
- Bad Debt (client non-payment)
🚀 Simple Setup Summary
If you want a clean contractor setup, start with:
Income
- Contract Income
Assets
- Bank
- Accounts Receivable
COGS
- Contractor Expenses
- Purchases
Liabilities
- Accounts Payable
- Unearned Revenue
Expenses
- Office Expenses
- Rent
- Utilities
✨ Final Tip
For contractors:
Profit is made or lost in project costing
If you don’t separate:
- Project costs (COGS)
- Operating expenses
👉 You won’t know which projects are actually profitable.