How job costing works
Costs are coded to a job as they are incurred, usually through timesheets for labor, bills for materials and subcontractors, and an allocated share of overhead such as equipment or office costs. This job-level detail sits underneath the company's overall chart of accounts, so the general ledger still rolls up normally for financial statements.
Comparing actual job costs to the original estimate, often called a job cost report, shows which cost categories are running over budget while a project is still in progress, not just after it closes. Businesses use this to adjust pricing on future bids, catch scope creep early and decide whether change orders are covering their added cost. Overhead is typically allocated using a rate based on direct labor hours or a percentage of direct costs, agreed in advance so it can be applied consistently across every job rather than guessed at closing.
Example
A remodeling contractor estimates a kitchen job at $30,000: $12,000 materials, $10,000 labor, $5,000 subcontractors and $3,000 overhead. Halfway through, job costing shows materials already at $13,500 due to a price increase, while labor and subcontractor costs are tracking on budget. The contractor raises a $1,500 change order with the client to cover the overrun instead of absorbing it. The final job cost report, once the kitchen is finished, shows total costs against the original $30,000 estimate and the profit margin actually earned after accounting for the change order revenue.
Job costing in QuickBooks Online vs Xero
QuickBooks Online Plus and Advanced support job costing through sub-customers or projects, tagging every bill, expense and timesheet entry to a specific job for a profitability report. Xero uses its Projects add-on for the same purpose, tracking time and costs by project and comparing them against a quoted or budgeted amount.
Related terms
How LedgerBPO handles job costing
We set up job costing in your accounting software so every bill, timesheet and subcontractor invoice is coded to the right job, then deliver a monthly job profitability report by project. This gives you real numbers on which jobs are actually making money, instead of relying on a gut feel at year end.
Bookkeeping and billing for construction companies & contractors