Question:
I am a new residential home builder and am using Peachtree Complete
Accounting for Windows v8.0 for my book keeping and accounting purposes. I
am unclear on what is the best set of Accounts for a builder.
I am sure that I could track the cost of goods sold either through Jobs
(treating each spec home as a job) or via Inventory (treating each home as
an assembly). Can anyone offer insight on choosing one over the other?
Here are some of my more specific questions:
1. What is the simplest acceptable way to track my expenses associated with
the construction of a specific home so that I can determine:
a. Amounts due/paid (both labor and materials) for different components of
construction (framing, grading, roofing, etc.) for a specific spec home?
b. Amounts due/paid to a specific vendor for work performed on a specific
spec home?
c. Summary of all amounts due/paid to a specific vendor?
2. What is the distinction between an Expense gl account and a Cost of Sale
gl account? More specifically, should I setup a Framing Expense account or a
Framing Cost of Sale account?
Answer:
IN THEORY:
a) If you are building as a contractor you should track your costs through cost
of goods as jobs.
b) If you are spec building, the homes are inventory until they are sold. Any
further improvements after the sale would be contracting and should be tracked
through cost of goods.
IN PRACTICE:
Pick the easiest one method for your situation and make adjusting entries at the
end of each accounting period. I tend to like the inventory method. I close
out all spec sales and all contracting work at the end of the accounting period.
I only track cost of goods (materials, labor, subs & other specific cost
items). I make no attempt to associate expenses with specific projects. I have
found any such effort to be useless at best. At worst it is misleading and
costly.
These question are software specific. I have no experience with Peachtree
Complete v8.0.
IN THEORY:
Framing could be a cost of sale item. Normally, expenses are "general &
administrative" in nature. The only way framing could be a "general and
administrative" item would be if it were incurred as a small office repair.
IN PRACTICE:
They are both debit accounts on the income statement. For a small home builder
it probably doesn't make any difference at all.
The obvious solution would be to use an accounting package that was built to do
job costing. Such a package would use job cost codes that are industry
standard, such as CSI (Construction Specification Institute) and allow the user
to customize cost codes to meet their unique needs. Second, the software would
meet the specific needs of a contractor instead of being a generic accounting
program that kinda, sorta, maybe does job costing. Using a generic accounting
program is like using a rock to pound nails. If you want a job costing program
that is superior to any generic accounting program on the market, go to
www.a-systems.net and check out the "Starter" version. It is shipped for the
cost of preparing and shipping the program, a mere $25. If your construction
company grows, your software will grow with you. The top end package is used by
companies doing offer $100 million per year. The starter package is no slouch
either. Many companies will never have to purchase another package. What will
you have to pay for tax tables this year for QB? The software available for $25
has user definable tax tables with information on their website that shows what
the tax tables should look like.
One more thing, the software comes with 50 sessions of multimedia training
right on the CD. Training starts with an introduction to the terminology of
accounting and finishes with the finer points of job costing, payroll, workers
comp, etc. This package is being offered to small and startup companies,
practically for free.
If you are serious about running a construction company, you need job costing.
Nothing else will do.
