Updated: Oct 29
Starting a construction company can be thrilling. But handling the money side of things, like construction cost codes and general ledger (GL) accounts, can be tricky. Don't worry! We're here to explain these terms and show how Construction Cost Accounting (CCA) can make your life easier.
In this article, we are going to go through these questions:
What are Construction Cost Codes?
In construction, cost codes are labels for specific tasks, like 'concrete walls,' 'footing,' or 'roofing tiles.' By tracking expenses with cost codes, it's easier to see how much you spend on each task. These expenses then show up in the "Cost of Goods Sold" account in the General Ledger.
You might find the CFMA’s detailed list of construction cost codes helpful to understand this better.
Why Do Construction Cost Codes Matter?
The use of cost codes brings a host of benefits:
Same System for Everyone: Using cost codes makes your cost setup the same for all projects. This way, everyone you work with uses the same money terms. This helps avoid mix-ups.
Keep Track of Spending and Progress: Each cost code has a budget. You can check if you're spending as planned. If anything is off, you can spot and fix it quickly. You can also see how far along each job is.
Better Choices: Cost codes let you make detailed reports. These show how much the project costs and how much money you could make. You can also use information from past projects to help with your future ones.
Follow the Rules: You might need to use specific cost codes depending on where you are and what you're working on. For example, builders in the US often use something called CSI codes. In the UK, they might use IFC codes.
What is a General Ledger?
While cost codes detail job expenses, the general ledger gives a big-picture view of your project's finances. It includes categories like "Material", "Equipment", or "Subcontracting". It's a useful tool for getting a quick picture of your project's financial health.
How Do Cost Codes and the General Ledger Connect?
Now you know the difference between cost codes and a general ledger. Let's talk about how they're related. Whenever you add a cost to a project, you need to choose a job and a cost code. This could be when you're adding an invoice, recording wages, or directly entering the ledger.
The cost code shows what type of expense it is, like materials, wages, or subcontractor costs. You also need to pick a ledger expense account that matches the cost code. This way, you can put the expense anywhere you want on the project, as long as it's one of the direct expense accounts.
"Every dollar in a construction company's bank account is there because of a decision that was made on a job site. And those decisions need to be traced through cost codes and categories in the general ledger. Understanding this relationship is crucial to managing job costs and profitability." - Dennis Stejskal, former Vice President of Product Management at Sage
How Can Construction Cost Accounting Help?
Understanding construction cost codes and the general ledger can be tough. But that's where CCA comes in. We offer specific bookkeeping services to help manage your project's finances. This allows you to focus on what you do best: construction.
We're familiar with the unique financial challenges of the construction industry. Our team can handle cost codes, general ledger entries, and more, making sure your records are accurate and up to date.
Let's wrap things up! Cost codes and the general ledger are key tools for tracking money in the construction business. They help you keep an eye on expenses, control costs, and make smart decisions. But they can be tricky to figure out.
Good news! You don't have to go through this alone. At CCA, we're ready to help. Our team knows the ins and outs of these financial tools. We'll make sure your records are precise, up-to-date, and follow all industry rules.
By working with us, you get to focus on what you love - building. And with a solid grip on your project's financial side, you can move forward with confidence. You'll see your ideas turn into something real and solid.
Let Construction Cost Accounting help you with your books!
Contact us today via email@example.com or call us at (949) 356-0840.