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
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.
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.
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.
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.
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.
- 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.
- 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.
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.
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.
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.
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.
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.
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.
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, also known as capital, is the original investment in a company, or the claims against assets. The account number is within the 3000 series.
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.
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).
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.
- If income exceeds expenses; a net income is produced. If expenses exceed income, the business is said to be operating at a net loss.
- 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®.
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.|
|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.|
|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.|
|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.|
|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.|
|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.|