Job Costing Steps Explained (overview)
Job costing is simply keeping track of every dollar you spend to complete a job and every dollar you receive for completing it. This allows you to see total revenue and total expenses allowing you to know which jobs are profitable and which are loosing you money.
Our Job Costing feature was specifically designed for service based businesses and new construction oriented businesses. Job costing is informative and easy-to-use.
How It Works
Job costing is integrated throughout Total Office Manager. You’ll start by setting up one or more Jobs (more on that later) and then associate payments, expenses, and various other job related transactions with that job.
Set Your Payroll Preferences
Click Edit | Preferences | Payroll
In the Allocate Payroll Liabilities to Job Costing field, select the correct option for the type of account you would like to allocate your payroll liabilities related to job costing to.
Create a Job
Click Customer | Customer:Job List
Click the Customer:Job button. Click New Customer to create a new top level Job or click Add Customer and\or Job to create a sub (child) of an existing Customer:Job.
Enter contact information, phone numbers, payment methods, etc., as needed. See Adding/Editing Customer for more information.
Click the Job Info tab.
Select a Job Type from the list or add a new one if needed.
Select a Job Status. The choices are pre-made and can’t be changed.
In the Start Date field, enter the actual start date of the job.
In the Projected End field, enter the projected completion date of the job.
The Job Completion Date is the date the job ended and will be used later, when the job is closed.
In the Projected Total field, enter the amount the job is going to sell for. Alternatively, you may select an Estimate (which you would need to create for this job) and this field will auto populate.
In the Description field, enter a brief description of the job.
In the Job Details field, enter extensive details about this job (if you wish). You may also paste a proposal into this field or other text from another program (like MS Word).
When complete, click OK to save your changes and close the form or Next to save your changes and add another customer:job.
In the customer:job form, Job Info tab, there is an option called Additional Overhead.
The Assign Overhead as Percentage of Final Amount option allows you to add overhead to your Job Costing report (this report only) as a percentage of the amount the job is finally sold for. For example, you could add 20% to cover miscellaneous overhead (like rent or insurance) that was not otherwise allocated to the job.
The Assign Overhead as a Dollar Amount option does the same thing only the amount you enter is a dollar amount and that amount stays the same (fixed) no matter what the job ends up selling for.
This feature makes it possible to “pick up” any other overhead that may not have otherwise been associated with the job. Examples may include rent, general insurance, and so forth. Typically it would be difficult to divide this check out to all of your jobs.
You might even use this feature to help pay your commission based salespeople. For example, you could tell them they get 50% of the net profit on every job and you will assign 35% overhead to each job. This overhead number comes from your income statement and could be adjusted each month or each quarter.
Adding Revenue, COGS, and Expenses to a Job
This part is simple and automatic with Total Office Manager. You will basically just do your everyday accounting and Total Office Manager does the rest. Total Office Manager will give you an opportunity to associate a job with all income and expenses. Even such things as inventory adjustments and adjusting journal entries can be attributed to a job. Here are some examples:
Each time you create an invoice or a sale, you will select the job you just setup. Total Office Manager will automatically keep track of the revenue (sales) and any cost of goods sold (COGS) you have for inventory items sold.
When you receive items, enter a bill, or write checks, you may select jobs on a line by line basis. Total Office Manager will track these items for you. Through the Reimbursables feature, Total Office Manager will remind you to add these items to your invoice. Once they become part of the Invoice, the COGS will be included in Job Costing.
When you enter expenses, you may select jobs on a line by line basis. Total Office Manager will track these expenses for you. Expenses are automatically and immediately added to Job Costing.
Non Inventory Items
This is a special type of item in Total Office Manager. With a non inventory item, you incur an expense when you invoice it (sell it).
This item type is commonly used for items you buy and sell but do not wish to track through conventional means. Examples might include nuts & bolts, strapping, wire nuts, screws, and other small items.
If you wish to have these items become part of job costing, be sure that you add these items to your invoice.
IMPORTANT: Be sure to read the Help topic, Non-Inventory Part for more information.
When you setup service items, you will notice they have no direct cost associated with them. This is because you do not actually buy them in the traditional sense; like you do regular parts.
However, many service items require labor to install them or perform. Examples may include inspections, cleanings, etc. Total Office Manager allows you to easily associate labor with these service items.
This is done in timesheets. When you enter your employee’s hours, you have the option of selecting a service item. The cost of the labor for those hours becomes the cost associated with that service item.
To setup a service item, click Customers | New Invoice Item and select the Service Item option.
Adjusting Journal Entries (AJE)
You can make AJEs and attribute them to a specific job. Be sure that you select a Customer:Job for EACH line item that you wish to be including in your Job Costing reports.
Remember that certain account types will not affect your job costing report summaries. These include the following:
Accounts Receivable (increases the A/R for this job but not recommended)
Long Term Liability
Other Current Asset
Other Current Liability
This means that if you make AJE using any of the above accounts, your Job Costing report summaries will not be affected. Generally when it comes to job costing, AJE are used to move income, expenses, and cost of goods sold so only these account types will affect job costing.
Adding Payroll to Job Costing
When you prepare timesheets, you have the opportunity to select a customer:job. You do this on a line item basis per day.
If you wish to associate part of a salaried employee’s payroll to a job, you must use the timesheet. Just enter that employee, pick the correct job, and enter their hours. Total Office Manager will divide their weekly salary by 40 and multiply by the number of hours you enter.
When you use the timesheet for a salaried employee, you are NOT creating additional payroll for them. The timesheet simply tells Total Office Manager where to allocate their salaried payroll.
You’ll see what we’re talking about when you open the timesheet. You access timesheets by clicking Employees | Timesheet/Time Tracking
Review Job Cost Related Reports
You have several reports that will show you details about your jobs. These include Job Costing, Income Statement by Customer:Job, Sales\Invoice\Credit\Estimate Details, and Transaction Details by Account.
The Job Costing report is the most common of all job cost related reports. This report includes all of the setup details of the job as well as the profitability of the job. Click Reports | Job Cost
The Income Statement by Customer:Job report is the same as the regular income statement. This option simply creates an IS for a particular customer:job. Note: The IS by customer:job will NOT include payroll taxes. Payroll taxes are only attributed to jobs in the Job Cost report (mentioned above). This report will NOT display extra overhead; which is setup in the Job Info tab (mentioned above).
The Sales\Invoice\Credit\Estimate Details report is located under the Reports menu option. It displays a selected record and details include amount, COGS, labor for service items, balance due, and more. Use this report as a invoice level job costing report.
The Transaction Details by Account report includes an option to filter by customer:job. This report is typically only used by accountants for diagnostic purposes. Most managers will not use this report to evaluate a job’s profitability.
Job Costing FAQ
Question: I use non-inventory items when entering bills (or writing checks). This item seems to mess up my job costing reports and income statement. Why doesn’t a cost appear on my income statement, or other reports, for this item?
Answer: There is no cost actually associated with non-inventory part unless the box called “This item is purchased for and sold to a specific Customer” in checked. When checked, you select a COGS or Expense account. Unless this box is checked, Income will be reduce when this item is purchased. I other words, when you buy this item, the Income account that is associated with this item is debited. If you plan to use non-inventory items for job costing, you would generally want to check that box.
Question: I have a service item called “Inspection”. I sell this item on invoices. I use this service item on time sheets and properly associate an employee and a job with this item. Why doesn’t a labor cost appear on my income statement for this item?
Answer: There is no labor cost actually associated with this job. In order for you to see the cost appear, you need to incur the cost. By entering the hours on a timesheet, you’ve only said how much time you’ve spent and you haven’t really recorded any cost.
Question: Why doesn’t COGS show up on our Income Statement by Job? We enter bills and select a customer with each line item. We are using inventory items. We go into Reports and select Income Statement. We select a specific Customer:Job and preview the report. Many of our bills do not show up in COGS.
Answer: The Income Statement will not show COGS until you create an invoice (or sale). Bills do not affect the income statement; they affect the balance sheet. This is because the income statement is based on accrual accounting. When you enter a bill, your inventory assets go up (debited) and your liability account (accounts payable) goes up (credited). COGS accounts don’t change. When you use inventory parts, Total Office Manager increases your COGS accounts when you sell an item, not when you buy it. This is correct behavior. Try using the Job Cost report instead.
Question: How can we do accurate job costing when we do not use inventory control (we don’t use inventory items)?
Answer: If you do not use inventory parts (Inventory type items), consider using the Expense tab when entering bills. Select a COGS account or an expense account from your chart of accounts. This will cause your COGS (and expense) accounts to go up immediately when creating the bill.
You could also use a Non-Inventory Item type with the “This item is purchased for and sold to a specific Customer” option checked. This will cause Total Office Manager to immediately raise your COGS account when the bill is entered. You may then use the same item when creating your invoice. Total Office Manager will not duplicate the COGS.
Your first step is to create a Non-Inventory Item. Here is how to do it:
Click the Item button on the main tool bar.
In the Type field, select Non-Inventory.
Check the “This item is purchased for and sold to a specific Customer.” check box.
Enter a description of your choice such as “Parts and Materials”.
Click the Accounting Information tab and be sure to select the appropriate accounts for Income and COGS\Expenses.
You do not need to enter a direct cost or retail price. These can be added as needed when entering bills and creating invoices.
Complete the rest of the fields as needed and click the OK button.
Use this item when buying materials for the job and when invoicing the job. In other words, select this item when entering a bill. Simply enter the amount that appears on the bill or the portion that is purchased for a particular job. Don’t forget to select the customer:job.
You can create additional items if it’s helpful and these items can be reused as needed.
- The cost of equipment and materials does not become part of job costing until an invoice is created. Sales (revenue) does not become part of job costing until you create an invoice. Please see In-Progress Invoice for more information.
- Purchase Orders and Estimates are displayed on the main Job Costing report (shown on the transaction list) but do not have an effect on the totals. This is because these are what accountants call “non-posting” transactions.
- Receive Items and Bills are included in the Job Cost transaction list but do not affect the Job Costing report (the main report). When an invoice is created, the Job Costing report is then effected. In other words, a sale actually must take place before the Job Cost report totals are affected. This prevents costs from being doubled when sales are created.
- The Expense Tab (on Bills and Checks) immediately effects job costing and do not need to be included on an invoice.
- Non-Inventory Items do not affect the main Job Cost report unless the “This item is purchased for and sold to a specific Customer.” option is checked. Until this box is checked, there is no COGS account selection. Be sure to read the Help topic, Non-Inventory Part for more information.
- Service items do not affect the main Job Cost report unless the “This service is performed by a subcontractor, owner, or a partner.” option is checked. Until this box is checked, there is no COGS account selection.