Chart of Accounts for Contractors

 

Please Note: This is part of a series of nine articles titled Accounting and Bookkeeping Principles for Contractors
Written by James R. Leichter

Chart of Accounts for the Service and Contracting Business

Introduction

A Chart of Accounts is a list of the financial accounts (bookkeeping) for a business, systematically arranged, generally according to assets, liabilities, equity, income, and expenses. Examples: Rent, Sales, Materials, Utilities, and Net Profit.

We have included a comprehensive Chart of Accounts for you to consider. Please note that this Chart of Accounts was specifically designed for the contractor with an emphasis on a residential/light commercial HVAC company.

Most software programs include a built-in Chart of Accounts that you can choose and modify to meet your own requirements. Total Office Manager includes this Chart of Accounts.

Business Type

This document contains the recommended chart of accounts for a typical HVAC company. If you do additional types of work, you may need to add or modify some of the existing accounts so that this chart of accounts (COA) will fit your needs.

Please consult with your qualified accountant if you have concerns about this COA or if you have questions.

Departmentalization

This COA assumes that you are using accounting software that can departmentalize or classify your accounts such as income, expenses (overhead), cost of goods sold (direct expenses), and other accounts.

For example, QuickBooks® allows you to select a “Class” for income, cost of goods sold, expenses, and many other accounts. That is adequate for this chart of accounts.

Total Office Manager® allows you to select a department when you buy and sell parts and equipment. That is adequate for this chart of accounts.

The reason the COA does not include an income and expenses account for every division or department is that those are setup in the software program and selected when entering bills and or entering sales. This keeps the COA concise.

Example Department List

Here is the recommended list of departments. Notice how each department is actually part of a division. Enterprise level accounting software will allow you to select a department on each line of a bill, check, invoice, and more. The screen shot below shows the department selector on an invoice from Total Office Manager® software. This makes unnecessarily complicated COA a thing of the past.

Residential Division
    Service
Preventative Maintenance
Replacement
New Construction
Duct Cleaning
Warranty

Commercial Division
    Service
Preventative Maintenance
Replacement
New Construction
Warranty

Over The Counter

How to Use this Chart of Accounts

This recommended COA should be reviewed and edited as needed. You would then enter these accounts into your software’s chart of account system.

You may need to merge old accounts into their replacement accounts. You would then want to inactivate or delete the old unused accounts.

A chart of accounts list is used every time you enter a new client, inventory item, bill, and more. These are the same accounts that appear on your company’s income statement (profit and loss statement), balance sheet, and other financial reports. These accounts might include Labor Income, Parts and Materials, Technician Wages, Rent, Insurance, Office Wages, and more.

Departmentalization of Income and Cost of Goods Sold

Departmentalization of Income and Cost of Goods Sold

Introduction to Account Types

QuickBooks and Total Office Manager use the following account types in its Chart of Accounts list. This information is provided for reference for those researching the various account types that make up a chart of accounts. These accounts are essentially universal and independent of what accounting software system you are on.

  1. Numbering series refers to the number range used for each account type. For example, Assets accounts are numbered from 1000 to 1999. This standard makes usage easier.
  2. If you are large company with a larger COA list, you can expand your numbering from the 1000 to 1999 series and use 10000 to 19999, 20000 to 29999, etc.

Bank Account

This is a current asset. Add one bank account for every account your company has at a bank or other financial institution. The account number is within the 1000 series.

Current Assets

These accounts will be converted into cash within a year. Current assets include the following account types: cash, accounts receivable, inventory, and other current assets. The account number is within the 1000 series.

Accounts Receivable

A/R is a form of current assets. It is money owed by clients for items or services sold to them or for materials furnished by the company when cash is not received at the time of sale. Typically, accounts receivable balances are recorded on sales invoices that include terms of payment. Accounts receivable is used in accrual-based accounting. The account number is within the 1000 series.

Other Current Assets

Represent those assets that are considered nonworking capital and are due within a short period of time, usually less than a year. Prepaid expenses, employee advances, and notes receivable with maturity dates of less than one year of the current balance sheet date are considered current assets. The account number is within the 1000 series.

Fixed Assets

They represent property, plant, or equipment assets that are acquired for use in a business rather than for resale. They are called fixed assets because they are to be used for long periods of time. The account number is within the 1000 series.

Other Assets

They represent those assets that are considered nonworking capital and are not due for a relatively long period of time, usually more than one year. Notes receivable with maturity dates at least one year or more beyond the current balance sheet date are considered to be non-current assets. The account number is within the 1000 series.

Current Liabilities

These are obligations (payments) due within one year. Current liabilities include the following account types: accounts payable and other current liabilities. The account number is within the 2000 series.

Accounts Payable

A/P is a form of current liabilities. The amount of money owed to vendors for goods, supplies, and services purchased on an open account. Accounts payable balances are used in accrual-based accounting, are generally due in 30 or 60 days, and do not include regular interest. Please do not confuse with Notes Payable. The account number is within the 2000 series.

Other Current Liabilities

Represent those debts that are due within a short period of time, usually less than a year. The payment of these debts usually requires the use of current assets. The account number is within the 2000 series.

Credit Card (account)

A current liability account, this is used for credit card purchases, bills, and payments. The account number is within the 2000 series.

Long Term Liability

Represent those debts that are not due for a relatively long period of time, usually more than one year. Portions of long-term loans due and notes payable with maturity dates at least one year or more beyond the current balance sheet date are considered to be long term-liabilities. The account number is within the 2000 series.

Equity

Equity, also known as capital, is the original investment in a company, or the claims against assets. The account number is within the 3000 series.

Owner’s Equity

The sum of the following account types: equity – doesn’t close, equity retained earnings, equity – gets closed, sales, cost of sales, and expenses. The account number is within the 3000 series.

Retained Earnings

The Retained Earnings account is updated at the close of the fiscal year with the ending balance of your income and expenses (net income). The balance in the retained earnings account continues to accrue at the end of each fiscal year.

& Review and import this COA into your own account ting software. You may also make changes manually. Keep in mind that you may need to merge and delete duplicated accounts.

Income (AKA: Sales or Revenue)

An account used to record revenue (money coming into your company). These accounts are a way of categorizing or separating out your income. They represent the inflow of assets resulting from the sale of products and services to clients. If income exceeds expenses a net income results. If expenses exceed income, the business is said to be operating at a net loss. The account number is within the 4000 series.

Cost of Goods Sold

Commonly referred to simply as “COGS”, it is any expenditure that can be directly attributable to a specific job. This might include labor, parts, materials, equipment, supplies, sub-contractors, permits, and more. The account number is within the 5000 series.

G  Cost of Goods Sold (also known as Cost of Sales) for inventory items are computed based on the inventory costing method (FIFO, LIFO, or Average Cost).

Expense

Also known as “Overhead”, money spent on normal administrative activities such as rent, insurance, office wages, utilities, telephone, and more. Please also see Cost of Goods Sold. The account number is within the 6000 series.

  1. If income exceeds expenses; a net income is produced. If expenses exceed income, the business is said to be operating at a net loss.
  2. You will notice that Marketing is not broken down in great detail. This COA assumes that marketing expenses can be analyzed in great detail using marketing related reports such as the ones found in Total Office Manager®.

Other Income

Money received for something other than normal business operations, such as interest income. The account number is within the 7000 series.

The Chart of Accounts

Account # Account Name Account Type Definition of Account
1000 Cash On Hand Bank All cash and equivalent in our possession.
1005 Cash in Bank:Operating Acct. Bank Regular checking account.
1010 Cash in Bank: Payroll Account Bank Special account used for payroll
1015 Cash in Bank: Savings Bank Company’s savings account.
1020 Cash in Bank: Petty Account Bank Cash kept in office for small purchases. This should be reconciled monthly.
1100 Accounts Receivable Accounts Receivable Only “Trade” accounts receivable. Includes only those resulting from a sale or other billing to a customer for work done or for materials furnished by the company.
1105 Employees Receivable Other Current Assets Amount receivable from non-officer employees of the company.
1130 Inventory Current Assets All merchandise in stock. This account should not include the value of any merchandise for which invoices have not been received or any merchandise which has been taken to the job site.
1140 Earnings in Excess of Work in Progress Current Assets Difference between calculated earnings and actual billings on work in process where earnings exceed billings.
1150 Notes Receivables Other Current Assets All notes and loans receivable from other companies or individuals. Portion that is due within the next twelve months.
1160 Un-deposited Funds Other Current Assets Money received but not yet deposited into a bank account.
1200 Building Fixed Asset The base value (cost) of any building that is owned by the company (plus or minus any adjustments).
1205 Office Furniture & Equipment Fixed Asset The base value of all office furniture and equipment owned by the company.
1210 Machinery & Equipment Fixed Asset The base value of all machinery and equipment owned by the company.
1220 Autos & Trucks Fixed Asset The base value of all autos and trucks owned by the company.
1225 Leasehold Improvements Fixed Asset The value (cost) of any improvements made to base facilities.
1230 Land Fixed Asset The value (cost) of land owned by the company.
1235 Accumulated Depreciation Fixed Asset Sum total of all accumulated depreciation of fixed assets.
1240 Amortization-Leasehold Improvements Fixed Asset The accumulated amortization of the leasehold improvements to facilities rented or leased by the company.
1250 Cash Surrender Value- Officer’s Life Insurance Fixed Asset The current cash surrender value of any life insurance policies on officers owned by the company.
1300 Prepaid Expenses Current Assets Expenses paid in advance of their due date.
1310 Prepaid Expenses: Interest Current Assets Interest applicable to installment loans or interest paid for a future period of operation.
1320 Prepaid Expenses: Insurance Current Assets Active insurance premiums related to a future period of operation.
1340 Prepaid Expenses: Rent Current Assets Any rent paid in advance.
1350 Prepaid Expenses: Commissions Current Assets Any draw by salesmen against future commissions.
1360 Prepaid Expenses: Taxes Current Assets Taxes paid in advance that will be expended during a future period of operation.
1370 Prepaid Expenses: Other Current Assets Any other prepaid expense of the company.
1400 Deposits on Bids Other Assets Refundable deposits made on job bids.
1405 Deposits on Utilities Other Assets Refundable deposits made for utilities services.
2000 Accounts Payable Current Liabilities All trade accounts payable. This account should not include any other payables, such as notes or taxes.
2005 Notes Payable-Current Portion Current Liabilities Total amount of payments to be made in the next twelve months on all notes and loans owed by the company.
2010 Sales Tax Payable Current Liabilities Sum total of all sales tax due to State, City and other Governmental units, detailed by individual taxing authority.
2015 Unemployment Taxes Current Liabilities The amount of State and Fed. Unemployment Taxes due.
2020 FICA Payable Current Liabilities The amount of employee’s withheld and employer’s contributed F.I.C.A. payable to the Federal government.
2025 Federal Withholding Taxes Payable Current Liabilities The amount of income tax withheld from employees’ earnings and payable to the Federal government.
2030 State Withholding Taxes Payable Current Liabilities The amount of State income tax withheld from employees’ earnings and payable to the State government.
2035 Corporate Income Taxes Payable Current Liabilities The amount of Federal and State income taxes owed by the company.
2040 Other Taxes Payable Current Liabilities Any other taxes owed by the company for which the tax bill has been rendered.
2045 Accrued Salaries & Wages Current Liabilities All salaries and wages earned by employees and not yet paid by the company.
2105 Billings in Excess of Work in Progress Other Current Liabilities Over-billed. The difference between calculated earnings and actual billings on work in process where earnings on incomplete billings exceed earnings.
2110 Reserve for Start-Up Warranty Service Other Current Asset The amount of income withheld from sales & to cover start-up expenses and warranty service on completed jobs.
2115 Reserve for Service Contracts Other Current Asset Amount of income not yet recognized on existing service and maintenance contracts. Check with your state for details on rules and regulations.
2220 Notes Payable Long Term Liabilities The sum total of all notes owed by the company detailed by each individual note.
2225 Less Current Portion Current Liability Total amount of payments to be made in the next twelve months on all notes owed by the company. This is a contra-account to #2204.
3000 Capital Stock Liabilities and Equity The base value of stock issued by a corporation.
3010 Paid-In Capital Liabilities and Equity The premium (above par or stated value) paid to the company by purchasers of capital Stock.
3020 Retained Earnings Liabilities and Equity The amount of after-tax profits retained to date by a corporation.
4005 Equipment Income Serialized equipment.
4010 Parts and Materials Income Non serialized minor parts and materials.
4015 Sub-Contracting Income Income from sub-contractors.
4020 Installation Labor Income All labor sales.
4025 Other Income Income not otherwise listed.
5005 Equipment COGS Serialized equipment.
5010 Parts and Materials COGS Non serialized minor parts and materials.
5015 Sub-Contracting COGS Income from sub-contractors.
5020 Labor COGS All direct labor expenses.
5025 Other Direct Costs COGS The cost of permits, bonds, etc. incurred on specific jobs.
6020 Advertising and Marketing Expense The company’s net expense for all advertising, marketing, and sales promotion.
6040 Auto & Truck: Gas & Oil Expense The total cost of auto and truck gasoline, diesel or other fuels, and oil.
6060 Auto & Truck: Repairs & Maintenance Expense The total cost of all auto and truck repairs, maintenance (tires, batteries, etc.), tolls and inspection fees, not including insurance and license tags.
6080 Bad Debts Expense The uncollectible accounts of the company or the current period allowance for doubtful accounts. If you use an allowance for doubtful accounts, a debit in this account will require an equal credit in the allowance for doubtful accounts. Otherwise, the credit would be made directly to the accounts receivable account in the event that particular accounts are found to be uncollectible.
6100 Communications Expense Telephone, long distance charges, pager, two-way radio, internet, email, etc.
6120 Communications: Internet Expense Internet hosting and email services
6140 Communications: Telephone Expense Telephone, long distance charges, pager, two-way radio, etc.
6160 Contributions Expense Any donations recognized as charitable causes. This account should not include any expense for which the company will receive advertising benefit.
6180 Customer Relations Expense Invoice adjustments, give backs, unplanned discounts, etc.
6200 Data Processing Expense Computer related expenses and repairs. Not for equipment purchase or lease expenses or payments.
6220 Depreciation Expense The depreciation and amortization of the current period for all fixed assets of the company.
6240 Dues & Subscriptions Expense The total expense for subscriptions, trade association dues, and other business related expense for dues and subscriptions, including Dodge Reports, etc.
6260 Employee Benefits Expense The cost of any company sponsored employee benefit plans, such as medical reimbursement, education, legal fees, counseling services, etc.
6280 Equipment Expense Expense The cost of operating, maintaining, repairing transporting or otherwise supporting all pieces of heavy machinery. Excludes insurance and depreciation.
6300 Freight and Postage Expense All freight and postage which cannot be readily charged to a specific job. Not to include advertising direct mail postage.
6320 Insurance Expense The company’s net expense for any insurance coverage.
6340 Insurance: Auto and Truck Expense The company’s net expense for any automotive insurance program in effect.
6360 Insurance: Building and Equipment Expense The company’s net expense for equipment and property insurance program in effect (other than what is already covered herein).
6380 Insurance: General Liability Expense The net cost to the company for premiums on its general liability insurance policy. This expense is usually calculated on total sales.

6400
Insurance: Health and Group Expense The company’s net expense for any health or other group insurance program in effect.
6420 Insurance: Worker’s Compensation Expense The net cost to the company for premiums on its worker’s compensation insurance policy. This expense is usually calculated on total payroll.
6440 Interest & Bank Charges Expense The total amount of interest paid on loans, notes and mortgages owed by the company, and any activity charges levied by the bank.
6460 Legal & Professional Expense All legal, collection, accounting consulting and other professional fees incurred by the company.
6480 Licenses and Taxes Expense All occupational licenses, competency certificate fees, tangible and intangible taxes, vehicle tags, corporate registration fees, sales and other miscellaneous taxes incurred and paid for by the company.
6500 Miscellaneous Expense All company expenses which currently cannot be charged to one of the other expense accounts.
6520 Office Expense Expense All stationery, postage, office equipment rental, and other office expenses.
6540 Rent Expense The expense for rent of any facilities used by the company or any special equipment rental not charged to another account.
6560 Repairs & Maintenance Expense The company’s cost of repairing and maintaining company facilities.
6580 Salaries: Office Expense The salaries and wages paid to office staff.
6600 Salaries: Officer Expense The salaries of the officers of the corporation.
6620 Salaries: Warehouse Expense The salaries and wages of all warehouse and delivery personnel.
6640 Salaries: Managerial/Supervisory Expense All salaries and wages paid to superintendents, department heads, and other supervisory personnel whose time cannot be charged to jobs.
6660 Salaries: Sales and Estimating Expense All salaries wages paid to salesmen, engineers, estimators, and other such employees.
6680 Sales Commissions Expense All salesmen’s earnings which are paid based on activity or volume of sales, gross profits, etc.
6700 Shop Supplies & Small Tools Expense All expenses for supplies used in the shop and for any small tools furnished by the company (generally tools costing less than $100).
6720 Shrinkage Expense Inventory losses or theft.
6740 Taxes Expense Taxes not including income, earning, or sales tax.
6760 Taxes: Payroll Expense The company’s expense for F.I.C.A. contributions and State and Federal unemployment compensation insurance.
6780 Taxes: Property Expense Property taxes
6800 Taxes: Other Expense Other non listed taxes.
6820 Travel & Entertainment Expense All company expenses for travel and entertainment except those relating directly to the sales effort, which should be charged to advertising.

6840
Unapplied Labor Expense The amount paid to the direct labor force but which is not charged to jobs.
6860 Unapplied Materials Expense The expense of any materials for which the company pays that are neither on hand nor have been charged to jobs by the end of the period. This account normally reflects that difference (debit or credit) between the book inventory value and the actual inventory value found when a physical inventory is taken.
6880 Uniform Expense Uniforms, accessories, and related cleaning services.
6900 Utilities Expense The company’s expense for heat, lights, water, sewer, trash or other utilities. This account excludes telephone expenses.
6920 Warranty and Call-Backs Expense Repairs made under warranty and are not reimbursable.
6940 Vacation, Holiday & Bonus Pay Expense All wages or payments made to hourly productive personnel for vacations, holidays, sick pay, jury duty, bonuses or other instances where normal job performance is not expected.
8100 Other Income Other Income Any non-taxable income received by the company, such as proceeds from insurance, tax refunds, etc.
8110 Bad Debt Recovery Other Income Money received that was previously written off as Bad Debt.
8120 Gain on Disposition of Fixed Asset Other Income The net amount of taxable gain to the company from the sale, exchange, abandonment, or involuntary conversion of fixed asset.
8130 Purchase Discounts Other Income Income realized as a result of cash discounts for early payment or other discounts granted by vendors.

8140
Interest Income Other Income The amount of income received from interest collected on any loans, notes, or mortgages owed to the company.
8150 Miscellaneous Income Other Income Any non-sales income received by the company except for purchase discounts and interest income.
8200 Other Expense Other Expense All non-operating expenses incurred by the company.
8210 Penalties & Fines Other Expense Any fines or penalties imposed by governmental entities on the company.
8220 State and Federal Corporate Income Tax Other Expense The company’s expense for both State and Federal corporate income taxes.
9300 Gain (Loss) On Disposition Of Fixed Assets Other Income/Expenses The net amount of taxable gain or loss to the company from the sale, exchange, abandonment or involuntary conversion of fixed assets.

 

3 Comments

  1. Sweet blog! I found it while searching on Yahoo News.
    Do you have any tips on how to get listed in Yahoo News? I’ve been trying for a while but I never seem to get there! Thank you

  2. Thanks for your personal marvelous posting! I seriously enjoyed reading it, you could be a great author.I will always bookmark your blog and may come back in the foreseeable future. I want to encourage you to ultimately continue your great posts, have a nice morning!

  3. Hi! I’ve been reading your website for a long time now and finally got the bravery to go ahead and give you a shout out from New Caney Texas! Just wanted to tell you keep up the excellent job!

Leave a Reply

Your email address will not be published. Required fields are marked *