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Job costing is the accounting process used to track all the costs associated with a specific construction project.

It’s like maintaining a detailed diary or ledger that records every penny spent on a project, from the materials used to the wages paid for labor.

Why is it Important?

This process is crucial for construction companies because it helps them understand exactly where their money is going for each project.

By knowing the cost of each component, companies can determine if a project is profitable or if it’s costing more than expected.

It’s a key tool for budgeting and financial planning, ensuring that a project stays within its budget and identifying areas where costs can be reduced.

How Does it Work?

Imagine you’re building a house. Job costing involves categorizing all expenses into buckets like materials, labor, and equipment.

For instance, the cost of bricks, paint, and tiles would go under materials, while payments to electricians and plumbers would be classified under labor.

This detailed tracking helps project managers make informed decisions, adjust project scopes, and negotiate better deals with suppliers or subcontractors.

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