GUIDE · BOOKKEEPING FOR CONTRACTORS
Bookkeeping for contractors,
from the progress bill to the closeout.
Bookkeeping for contractors means recording job costs by the same lines you bid (labor, materials, subs, equipment, permits), tracking retainage as money owed to you later, and adjusting revenue at month end for jobs billed ahead of or behind the work. ZeraBooks bookkeeping services keep those books monthly from your statements and invoices.
Free call · from $150 a month (USD) · quoted for your accounts and job volume
CHART OF ACCOUNTS
What chart of accounts does a contractor need?
Lay out job costs the way you bid, so the profit and loss can be read against the estimate. Numbers follow the ZeraBooks ranges: assets from 10000, liabilities from 20000, revenue from 40000, cost of revenue from 50000, operating expenses from 60000.
Revenue (40000s)
40100 Contract revenue, 40200 Change orders, 40300 Service and small jobs. Keeping change orders apart shows how much of the year came from extras.
Job costs (50000s)
50100 Direct labor, 50200 Materials, 50300 Subcontractors, 50400 Equipment rental and fuel, 50500 Permits and inspections, 50600 Dump and disposal. Only costs that go into a job belong here.
Overhead (60000s)
Office wages, the shop, trucks used across jobs, insurance, licensing and bonding, software, estimating and marketing. These stay out of job costs even when they feel like part of every job.
Assets (10000s)
Bank accounts, 11100 Accounts receivable, 11200 Retainage receivable, 11300 Costs and estimated earnings in excess of billings (underbillings), plus trucks and equipment at cost.
Liabilities (20000s)
20100 Accounts payable, 20200 Retainage payable to subs, 20300 Billings in excess of costs and estimated earnings (overbillings), 20400 Sales tax payable where your state taxes materials, equipment loans.
Tell us about your books. We’ll scope the work and quote it before anything starts.
RETAINAGE
How do you record retainage?
Retainage is part of each progress bill the customer holds back until the job is finished, often 5% or 10%. It is earned, but you won’t see it until closeout. Here is one $50,000 progress bill at 10% retainage.
| Line | Debit | Credit |
|---|---|---|
| Accounts receivable: due now | 45,000.00 | |
| Retainage receivable: due at closeout | 5,000.00 | |
| Contract revenue | 50,000.00 | |
| Totals | 50,000.00 | 50,000.00 |
When the customer pays the $45,000, accounts receivable clears. The $5,000 sits in retainage receivable until the punch list is done and the final bill releases it. If you hold back 10% from a sub’s $12,000 bill, the mirror entry goes to retainage payable: $10,800 now, $1,200 at closeout. A retainage receivable balance that keeps growing usually means closeout paperwork has stalled.
OVER AND UNDER BILLING
What are overbilling and underbilling, in plain English?
Progress bills rarely match the work done. If you bill ahead of the work, part of the cash isn’t earned yet. If you bill behind, you have earned money you haven’t billed. A work-in-progress (WIP) schedule measures both at month end by comparing cost to date with the estimate.
| Job, March 31 | Kitchen remodel | Office build-out |
|---|---|---|
| Contract price | 200,000 | 120,000 |
| Estimated total cost | 150,000 | 96,000 |
| Cost to date | 60,000 | 72,000 |
| Percent complete (cost to date ÷ estimate) | 40% | 75% |
| Revenue earned (contract × percent) | 80,000 | 90,000 |
| Billed to date | 95,000 | 78,000 |
| Overbilled (liability) | 15,000 | |
| Underbilled (asset) | 12,000 |
The kitchen job has $15,000 of cash that isn’t earned yet, so revenue is lowered by $15,000 and the same amount sits as a liability. The office job has earned $12,000 more than it billed, so revenue goes up and an asset is recorded. Banks and bonding companies read these lines closely: steady overbilling can hide a job that is losing money.
SUBCONTRACTORS
What paperwork do subcontractors need?
Most contractors pay more to subs than to anyone else. Two pieces of paper protect you, and both should be on file before the first payment.
A Form W-9 from every sub
It gives you their legal name and tax ID. For payments made from 2026, a Form 1099-NEC is due for each sub paid $2,000 or more in the year, up from $600, under the current IRS instructions. Payments to corporations are generally exempt, which the W-9 tells you.
A current certificate of insurance
Ask for proof of general liability and workers’ compensation, and note the expiry dates. At your insurer’s annual audit, pay to a sub without valid coverage can be counted as your own payroll and added to your premium.
Lien waivers with each payment
On larger jobs, collect a waiver from the sub each time you pay them, so their own suppliers can’t file a lien on your customer’s property.
Retainage held on their bills
If your contract with the customer holds retainage, your sub contracts usually do too. Track it in retainage payable so it is paid when the job closes.
CASH OR ACCRUAL
Should a contractor use cash or accrual accounting?
For taxes, many small contractors can choose. A corporation or partnership whose average yearly gross receipts over the previous three years are $32 million or less passes the gross receipts test for 2026 (IRS Revenue Procedure 2025-32). Passing it generally allows the cash method, and lets construction contracts expected to finish within two years skip percentage-of-completion for tax. Your tax preparer makes that call.
For running the business, monthly accrual books with retainage and a WIP schedule tell you far more. Cash books make a month with a big progress payment look great and the month you pay the subs look terrible, even when both belong to the same job. Many contractors keep accrual books monthly and let the tax preparer convert them for the return.
IN ZERABOOKS
How does ZeraBooks keep a contractor’s books?
ZeraBooks keeps the general ledger by account. It has no job or class tags, so job-by-job costing stays in your estimating or project tool. The books carry the totals by cost type, and the WIP adjustment comes from your job reports.
- 1
You upload the month
Bank and card statements, customer progress bills, sub and supplier invoices, and your job cost or WIP report, through your upload portal.
- 2
Costs land on the bid lines
Each payment goes to labor, materials, subs, equipment or permits from the chart above. Overhead stays in overhead.
- 3
Retainage and WIP are booked
Progress bills are split into amounts due now and retainage, and one month-end journal entry records the overbillings and underbillings from your WIP schedule.
- 4
Every account is proven
Each bank and card statement must tie to its printed balances before the month is signed off, and you see the reports in a read-only login.
Does ZeraBooks do job costing?
No. ZeraBooks has no job, class or project tags on transactions. Keep job costing in your estimating or project management tool and send us its WIP report each month. The books then carry the totals by cost type and the month-end WIP adjustment.
Is retainage income when I bill it or when I get paid?
On accrual books it is revenue when billed, held in retainage receivable until paid. On cash books it counts when the money arrives at closeout. Ask your tax preparer which method your business uses for tax.
Are materials a job cost or an expense?
Materials bought for a specific job are a job cost. Stock you keep in the shop for many jobs is inventory or supplies until it goes into one. Small tools and consumables used everywhere are usually overhead.
Do I need to send a 1099-NEC to my subcontractors?
For payments made from 2026, yes for any sub that isn’t a corporation and was paid $2,000 or more in the year, under the current IRS instructions. Collect a Form W-9 before the first payment so the year-end forms are quick.
My books are behind and the bank wants financials. Where do I start?
With every bank and card statement since the last month you trust. Books that were kept but don’t tie need a bookkeeping cleanup first. Landlords and managers have a different set of rules, covered in bookkeeping for property management.
How much does contractor bookkeeping cost with ZeraBooks?
The service starts at $150 a month and is quoted after a free call, based on accounts, job volume and how far behind the books are. If you would rather hand over the books than hire someone in house, outsourced bookkeeping explains how the handover works. Doing it yourself in ZeraBooks AI bookkeeping is $79 a month billed annually.
WE DO YOUR BOOKS
Spend the evenings on estimates.
Hand over the books.
Tell us how many accounts you run, how many jobs are open and how far behind the books are. We’ll quote the monthly work before anything starts. Book the free call. Running a kitchen instead? See bookkeeping for restaurants.
Last updated October 15, 2026 · Written by Damin Mutti, founder of ZeraBooks