J. Miller and Company Blog

August 14, 2008

QBP – build a perfect Account list for the Profit/Loss

Developing a perfect chart of accounts combines art and science.

Science because it is expected to follow GAAP (Generally Accepted Accounting Principles) and Art because there must be a good balance between sufficient detail and elegant simple presentation.

So I suggest using the sub-set ability in QBP to produce both. So, for example, in the profit/loss which is the area of the Chart of Accounts most burdensome, I suggest the following:

Main heading: COST OF GOODS

Sub-headings:

Material

Subcontract

Equipment

Other

Labor:

Gross field wages

Field Burden:

PR Taxes

Insurances – WC and General Liability

Benefits

Indirect allocation

Main Heading: OVERHEAD

Sub-headings:

1 – Indirect Allocation: this account holds detail of ALL expenses which relate to field labor but are difficult to attach directly to individual jobs:

Field small tools and supplies

Field vehicle expenses

Field education

Field uniforms

Field cell phones;

2 – Marketing and Sales: this account holds detail of expense relating to marketing and sales;

3 – General and Administrative: this account hold detail of expense relating to running and maintaining and office whether in your house or out;

4 – Overhead Payroll: this account holds detail of expense related to office payroll including the owner;

5 – Education & Training: this account holds detail of expense related to all education and training not field related.

In this way you get good detail (imagine that all the standard accounts for overhead are truly sub-sets of these 5 headings) and when you hit collapse the report shows only the summary information as follows together with a % of income.

Income

COGS

Overhead:

Indirect

Marketing & Sales

G&A

Overhead PR

Education & Training

Education and training is shown as a separate heading because this is a very big expense for companies trying to grow to a successful stage. You need to know what % of income you’re spending on education and set some expectation regarding payoff down the line.

So build your chart of accounts for the profit/loss in this way and reap the rewards of both sufficient detail (using the expanded version of the Profit/Loss report) and simplicity (using the collapsed).


Job cost accounting ,