QuickBooks Online setup for construction

Setting up QuickBooks Online for a general contractor or trade subcontractor is fundamentally different from setting up a standard retail or professional services business.

A standard business records expenses by vendor and category. A construction company must track expenses by project, phase, and cost code. If your costs are not linked directly to specific jobs, your profit and loss statement shows whether the company made money overall, but cannot tell you which projects generated profit and which lost cash.

Here is the exact step-by-step setup procedure required to run job costing, progress invoicing, and retainage tracking in QuickBooks Online.

Why the plan tier decides your construction setup

QuickBooks Online sells four primary subscription tiers, but only two can handle construction accounting:

Plan	Job costing (Projects)	Class / location tracking	Construction viability
Simple Start	No	No	Unusable for contractors
Essentials	No	No	Unusable (no job costing)
Plus	Yes (up to 5 users)	Yes	Recommended for most contractors
Advanced	Yes (up to 25 users)	Yes (plus batch workflows)	For multi-entity or large teams

QuickBooks Online list prices run from $38 to $340 a month across the four main tiers. Setting up the file through a QuickBooks Certified ProAdvisor unlocks a 30% discount on a new subscription, ongoing when your accountant bills it and for 12 months when you pay Intuit directly.

Do not attempt to run construction on Essentials using sub-customers alone. Essentials lacks the Projects module, class and location tracking, and inventory tracking. QuickBooks Online Plus is the minimum tier required to track job profitability.

Step 1: Turn on Projects and job-costing settings

Before importing your chart of accounts or connecting bank feeds, enable the operational switches in your company settings:

1. Click Gear Icon > Account and Settings > Advanced.
2. Scroll to the Projects section, select Edit, and tick Organize all job-related activity in one place.
3. Navigate to Expenses > Bills and expenses and turn on:
   • Show Items table on expense and purchase forms (required to code purchases to specific materials items rather than general expense accounts).
   • Track expenses and items by customer (this makes the customer or project field mandatory on bills and checks).
   • Make expenses and items billable (required if you bill clients for time and materials or pass-through expenses).
4. Navigate to Sales > Progress Invoicing and select Create multiple partial invoices from a single estimate.

These five settings transform standard expense entry into a job-costing engine.

Step 2: Establish the 5000-series job cost hierarchy

A standard corporate chart of accounts groups direct labor and materials into generic operating expenses. That structure destroys contractor reporting.

Your construction chart of accounts must separate direct job costs (Cost of Goods Sold in the 5000 series) from overhead expenses (Operating Expenses in the 6000 series).

Account #	Account name	Account type	Detail type	Purpose
1150	Retainage Receivable	Other Current Assets	Other Current Assets	Tracks customer retainage withheld
2110	Retainage Payable to Subcontractors	Other Current Liabilities	Other Current Liabilities	Tracks retainage owed to subs
5010	Direct Job Materials	Cost of Goods Sold	Supplies & Materials - COGS	Lumber, concrete, electrical, plumbing
5020	Direct Field Labor	Cost of Goods Sold	Cost of Labor - COS	Gross field crew payroll allocated to jobs
5030	Subcontractor Expense (1099)	Cost of Goods Sold	Cost of Labor - COS	Payments to independent trade subcontractors
5040	Job Site Equipment Rental	Cost of Goods Sold	Equipment Rental - COS	Cranes, excavators, scaffolding
5050	Municipal Permits & Engineering Fees	Cost of Goods Sold	Other Costs of Service - COS	Municipal permits tied to specific sites

Do not create an account for every vendor. Keep your general ledger clean by using items and cost codes under these parent accounts.

The full 41-account version, with every job cost, overhead and retainage account numbered, is in the contractor chart of accounts guide:

Step 3: Set up Retainage Receivable and Retainage Payable

Most commercial and custom residential contracts withhold 5% to 10% of each invoice until final substantial completion and punch-list sign-off.

If you invoice the gross amount with no retainage structure, your accounts receivable aging shows past-due balances that the client has no obligation to pay yet, and you cannot see how much of your receivables is locked up until completion, often for 6 to 18 months.

1. Create the two retainage accounts

• Retainage Receivable: Other Current Asset. This holds retainage withheld by owners/general contractors on your sales.
• Retainage Payable: Other Current Liability. This holds retainage you withhold from your subcontractors.

2. Create the Retainage Service Items

Navigate to Sales > Products and Services and add two service items:

• Item: Retainage Withheld mapped to the Retainage Receivable asset account.
• Item: Retainage Billed mapped to the same Retainage Receivable asset account.

3. How to invoice with retainage

When billing progress on a $100,000 contract with 10% retainage:

• Line 1: Phase 1 Framing = $50,000 (Taxable/Service Revenue).
• Line 2: Retainage Withheld = -$5,000 (negative amount mapped to Retainage Receivable).
• Net Invoice Amount: $45,000 (matches the exact cash payment due).

Accounts Receivable records $45,000, Revenue records the full $50,000 earned, and Retainage Receivable holds the $5,000 asset. When the job finishes, issue a final invoice with a positive line for Retainage Billed for $5,000, which clears the retainage asset and places the balance into active Accounts Receivable for collection.

Step 4: Configure Projects and customer hierarchies

QuickBooks Online Projects organizes transactions by site. Never post construction costs directly to a high-level customer name.

1. Create the Customer: Enter the property owner, developer, or general contractor under Sales > Customers.
2. Create the Project: Navigate to Projects > New Project. Name the project by address or job name (for example, 104 Oak Ridge - Remodel). Link it to the parent customer.
3. Assign Transactions: When entering vendor bills, material receipts, or subcontractor invoices, always select the specific project in the Customer/Project column on each line.

If an expense is entered with a blank customer field, it falls into unallocated company overhead. That missing tag is the single most common reason construction financial statements show a distorted gross margin.

Step 5: Implement progress invoicing from AIA estimates

For commercial projects requiring AIA G702/G703 billing or milestone progress draws, connect your estimates directly to invoicing:

1. Create a detailed Estimate for the project, broken down by cost code or schedule of values (Demolition, Concrete, Framing, Finishes).
2. When a billing milestone is reached, open the project, find the estimate, and click Create Invoice.
3. Choose your billing method:
   • Remaining balance of the estimate.
   • A custom percentage of each line (for example, 30% of Framing).
   • A custom dollar amount per line.
4. QuickBooks Online calculates the billed amount, tracks previously billed percentages, and updates the remaining balance automatically.

Step 6: Avoid the bank feed duplicate trap

In construction, materials are often purchased on credit cards at supply houses, while vendor bills are entered in advance.

When bank and credit card feeds are connected, transactions download automatically. If you click Add on a downloaded charge instead of Match, you create a duplicate entry:

1. The original bill or credit card charge posted to the project.
2. The bank feed download creates a second expense for the same purchase.

Follow the protocol detailed in our QuickBooks Online setup checklist: enter vendor bills and purchase orders first, then use the bank feed strictly to match existing entries against statement clearings.

When construction books require remediation

If your construction file has run for months without project allocation, or if retainage was booked to general expenses, your job profitability reports will not tie out to tax filings.

Restructuring a live construction file requires:

• Reclassifying unassigned 5000-series expenses to specific historical projects.
• Auditing 1099 subcontractor payments for missing W-9 records.
• Reconciling Retainage Receivable against signed prime contracts.

If more than one reconciled month is affected, that is cleanup work, priced by how many months it runs back:

$99per month of backlog20% off 6+ months

Starting a new construction file instead? Our QuickBooks Online setup service builds it with the construction chart of accounts, retainage included, in place from day one, for a flat fee. Review our specialized services on the contractors industry page or request a confidential file review through the contact page.