How do I handle change orders in my accounting?
Change orders need to be tracked separately from your original contract amount. When a client adds a feature or modifies the scope mid-project, that’s new work with new budget. Mixing it with original contract costs makes it impossible to see whether you estimated the job correctly or whether change orders saved your margin.
Create each change order as a distinct item in your job costing system. In QuickBooks, this might mean adding a sub-project or a separate class for each change order. The structure depends on your software and how many change orders you typically have per project. The goal is being able to pull a report showing original contract profit versus change order profit.
Document and get approval before starting the work. This isn’t just about protecting yourself legally. It’s about making sure the additional revenue actually gets recorded. A verbal “go ahead” from a client turns into a disputed invoice when they don’t remember agreeing to it. Written change order forms with signatures become billable line items that actually get paid.
Record the change order when it’s approved, not when the work is done or when you invoice it. You need to see committed revenue and committed costs as soon as the change order is signed. This keeps your work-in-progress reporting accurate. If you wait until the work is complete, you’re looking at outdated numbers when making decisions about the project.
Match costs to the correct change order. When you buy materials or pay labor for change order work, code those expenses to the change order specifically. This takes discipline but it’s the only way to know if that $8,000 change order you sold for $10,000 actually made money or if it ate into your original contract margin.
Track markup separately if your change order pricing differs from original contract pricing. Some contractors mark up change orders higher because they’re interruptions to planned work. Others mark them up less to maintain client relationships. Knowing your actual margin on change orders tells you whether your pricing strategy is working.
Review change order performance across jobs, not just within each project. If your change orders consistently lose money, your pricing formula is wrong. If they’re always more profitable than original contracts, you might be underpricing your bids and relying on scope changes to make margin. A San Diego construction bookkeeper can help you build reporting that shows exactly where your project profits come from.
San Diego's Small Business Bookkeeper
The Next Step:
A Short Conversation
A quick call to tell us about your business. We'll listen, answer your questions, and give you a clear price quote.
More Questions
What records should I keep for my small business?
Keep financial records like bank statements, receipts, and invoices for at least seven years. You'll also need tax returns, business formation documents, contracts, and employee records if you have staff.
Read answerWhat is prime cost and why does it matter?
Prime cost is your cost of goods sold plus labor costs. For restaurants, it's typically the two largest controllable expenses and should stay between 55% and 65% of sales for healthy profitability.
Read answerWhat accounting method should restaurants use?
Most small restaurants should use cash basis accounting. It's simpler, legal for operations under the IRS gross receipts threshold, and gives a clear picture of actual cash on hand. Accrual makes more sense for larger operations or those seeking outside investment.
Read answerAre there bookkeepers in San Diego who specialize in my industry?
Yes, San Diego has bookkeepers who specialize in specific industries. Industry expertise matters because each sector has unique accounting needs, from job costing in construction to tip reporting in restaurants.
Read answerHow do I handle comp meals in accounting?
Track all comp meals in your POS and record them as expenses in your books. Staff meals go to employee benefits or labor costs. Manager comps for customer satisfaction go to promotions or marketing. Record everything at food cost, not menu price.
Read answerWhat are California employer requirements for small businesses?
California employers must register with the EDD, carry workers' comp insurance, follow strict wage and hour laws, and provide mandatory sick leave. Many requirements kick in at specific employee thresholds.
Read answer