How do I handle change orders in my bookkeeping?
Change orders are a normal part of construction work, but they create bookkeeping challenges if you don’t have a system for tracking them. The goal is to capture the additional revenue and costs in a way that ties back to the original job while still letting you see whether the change order itself was profitable.
Start with written approval before any work begins. This isn’t just good business practice. It’s essential for your books. You need documentation showing what was agreed to, the price, and that the client approved it. Without this, you’re guessing at what to bill and have nothing to point to if there’s a dispute.
In your accounting system, record the change order as an addition to the original job or project. Most construction contractors use QuickBooks, and the cleanest approach is to add the change order as a new line item or sub-job under the main project. This keeps everything connected so your job reports show the full picture. Some contractors prefer to number change orders (CO-1, CO-2, etc.) so they’re easy to identify later.
Track the costs separately if you can. When you’re buying materials or logging labor for a change order, code those expenses specifically to the change order portion of the job. This lets you see whether you priced it right. A lot of contractors price change orders quickly in the field and find out later they underestimated. If your bookkeeping tracks change order costs separately, you’ll see that pattern and can adjust your pricing.
Update your job budget or estimate to reflect the new scope. If your original estimate was $45,000 and you approved a $3,500 change order, your new job total should show $48,500. This matters for progress billing and for comparing actual costs against what you expected.
Bill change orders according to your contract terms. Some contractors bill change orders immediately upon completion. Others roll them into the next progress bill. Whatever you agreed to, make sure your invoicing matches. Late billing on change orders is money sitting out there longer than it needs to be.
The real value of handling change orders correctly is seeing job profitability clearly. If you lump everything together, you might think a job was profitable when really the original scope lost money and the change orders saved it. Or the opposite. Working with a bookkeeper near Gentry who understands job costing helps you get reports that actually tell you what’s making money and what isn’t.
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