Phase Codes and Cost Codes with QuickBooks and Construction Accounting

Minimum Bottom Line Profit Should Average 9.4%!
For Trades & Subcontractors, at Least 11%
After Income Taxes Are Paid!

An interesting question was posed to me by a reader in the construction industry. In his company, the costs go directly to the Profit and Loss Statement via cost codes with QuickBooks. Naturally he has read several of my articles and he wants to know why use phase codes? If so, what is the difference between phase codes and cost codes with QuickBooks? To further complicate the subject, QuickBooks uses the term ‘ITEM’ codes when creating cost groups. Please tie all this together he requests.

I’m happy to oblige.

Before I describe and illustrate the differences, I need to explain the basic concept of why we are reporting information in a certain way. That is, I want to explain where I am going and then I can explain how all of us get there.

The whole goal of financial reports is to gain an understanding of financial performance and identify the key issues for changes to make improvements. In accounting we referred to this as a continuous feedback loop method of financial improvement. Insert data, report the data, discover opportunities for improvement; make changes and insert data and begin the whole process all over again. If you are even mildly alert to what is going on, you should easily identify opportunities and make financial improvements and ultimately maximize profitability for your business. It is not going to happen overnight but it will dramatically improve your bottom line within 2 years.

But all of this starts with the estimate for the project.

Phase Codes – Two Basic Types of Estimates

Almost every contractor uses one of two major types of estimates to generate a quote for a customer. The first and more basic type of estimate is the cost based estimate.

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