Cash vs. Accrual & the Contractor Chart of Accounts
# Cash vs. Accrual & the Contractor Chart of Accounts
Good books are how you know if you're actually making money — and how lenders and sureties judge you.
## Cash vs. accrual
- **Cash basis** — record income when paid, expenses when paid. Simple, but hides money owed and owing.
- **Accrual basis** — record income when **earned** and expenses when **incurred**, regardless of cash. Gives a truer picture and is expected by lenders/sureties.
Contractors often track **both** views: accrual for accuracy, cash for liquidity.
## The contractor chart of accounts
Structure your accounts for construction:
- **Direct job costs** — labor, materials, equipment, subcontractors (tracked **by job**).
- **Indirect / overhead** — office, insurance, admin.
- **Contract revenue** and **billings**.
- **WIP** accounts — costs and earnings in excess of billings (and vice versa).
A construction-specific chart of accounts makes **job costing** and **WIP** possible — generic small-business books don't.
**Takeaway:** Use a construction chart of accounts — generic books can't do job costing or WIP.
> *Educational content — not legal, accounting, or licensing advice. Rules vary by state and change; verify with the licensing board and a CPA.*
