Do you really know the difference between Cost Codes and General Ledger in Sage 100? What function do cost codes and general ledger play? And why are they seperate from each other?
When setting up new construction company in SAGE 100, it is quite important to determine the differences between Cost Codes and General Ledger (GL) Accounts.
We use cost codes to determine where costs are being spent. Each cost code relates to a specific activity, and cost codes are created to measure how much you spend on each activity. For instance, concrete wall, footing, roofing tiles etc. Cost codes are details of all job expenses and are made based on different types of your project. These cost codes will go to the "Cost of Goods Sold" account on General Ledger.
On the other hand, general ledger provides general description of project expenses. It only gives you a financial picture of your company. From the company's view, company wants to see the report on expenses, not details on construction materials. In general ledger account list, you will see broad categories such as "Material", "Equipment", or"Subcontracting" etc. We see all direct expenses related to all project costs. Since you are only showing the progress of the job on financial report, you should keep the general ledger simple.
How are cost codes and general ledger related?
Now you understand the difference of cost codes and general ledger. Let's see how we link the two. When you post an expense to a job, whether through an AP invoice, payroll, or direct general ledger entry, you will always choose a job and a cost code associated to the cost type. Cost types determine different categories of your spending based on material, labor, subcontractor etc. While posting the expense, you will also choose a general ledger expense account associated with the cost code. So we can post the expense anywhere we like on the job as long as it is in one of the direct expense accounts.
To sum up, keep your financial general ledger account simple and clean. In that way, business owners, construction partners, or investors see how well the project is going and whether to collaborate with you in the long-run.
Let us assist and plan for you! Construction Cost Accounting is located in Irvine, CA 92614, but we are servicing, Los Angeles, Orange County, and San Diego.
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