Introduction to Project Accounting in QuickBooks Online
What Is Project Accounting?
Project accounting is a specialized branch of financial management that focuses on tracking income and expenses associated with individual client jobs or projects. It enables businesses to monitor profitability and ensure cost control on a per-project basis. For construction firms, architects, engineering consultants, and specialty service providers, project accounting is critical to managing budgets, timelines, and resources efficiently.
Why Use QuickBooks Online for Project Accounting?
QuickBooks Online offers a powerful, cloud-based accounting environment tailored for small to mid-sized companies. The platform allows users to track real-time financials, access data on-the-go, and collaborate remotely with teams and clients. Features like the Projects tool make QuickBooks Online ideal for project accounting, offering transparency and detailed cost management.
Understanding the QuickBooks Projects Feature
What Is the Projects Tool?
The Projects feature in QuickBooks Online Plus and Advanced editions enables users to organize financial data by individual jobs. This includes assigning income, expenses, labor costs, and billable hours to each project. By grouping transactions, QuickBooks simplifies job costing and profitability tracking at the project level.
Whether you’re a general contractor managing multiple builds or a creative agency monitoring campaigns, the Projects tool keeps everything segmented and organized.
Real-Time Profitability Dashboard
One of the standout benefits of the Projects feature is its real-time profitability dashboard. From one screen, you can monitor:
- Total income per project
- Total cost and expenses
- Gross margin and profitability
This visual dashboard provides critical insights that help managers make informed decisions and ensure projects stay on budget.
Job Costing Capabilities in QuickBooks Online
What Is Job Costing?
Job costing is the process of tracking all direct and indirect costs associated with a specific job. This includes labor, materials, subcontractor payments, equipment rentals, and other expenses. For project accounting, accurate job costing enables companies to determine whether a job is profitable and which costs affected the bottom line.
QuickBooks Online supports granular job costing by allowing users to tag each transaction—whether it’s a time entry or vendor bill—to a particular project.
Tracking Labor, Materials, and Subcontractors
Labor cost tracking is streamlined through QuickBooks Time (formerly TSheets). Employees can log hours via mobile or desktop, and these hours are automatically assigned to projects for real-time labor costing.
Materials and subcontractor expenses can also be attributed to projects by categorizing bills, checks, and purchase orders. This ensures all job-related transactions are accurately recorded and reflected in project financials.
Useful Job Costing Reports
QuickBooks Online offers several pre-built reports that are invaluable for job costing:
- Profit and Loss by Project – View income and expenses specific to each project.
- Time Cost by Employee or Vendor – See labor costs broken down by employee or subcontractor.
- Unbilled Time and Expenses – Track billable hours and expenses that haven’t yet been invoiced.
These reports help business owners stay on top of financials and avoid underbilling.
Construction Accounting with QuickBooks Online
Handling Progress Invoicing and Retainage
In the construction industry, clients are often billed in phases based on project milestones. QuickBooks Online supports progress invoicing, which allows contractors to invoice a percentage or dollar amount of an estimate over time.
Retainage—amounts withheld until project completion—can also be tracked by creating separate line items or using workarounds that accurately reflect your accounts receivable and revenue.
Enhancing Capabilities with Third-Party Apps
While QuickBooks Online provides robust basics, some construction businesses find value in integrating with industry-specific software:
- Buildertrend – Adds WIP reports, budget forecasting, and client communications.
- Knowify – Streamlines estimates, change orders, and subcontractor management.
- CoConstruct – Manages schedules, materials, and construction billing in one interface.
These integrations enhance the utility of QuickBooks Online for construction accounting workflows such as change order tracking and job progress management.
Comparing Online vs. Desktop
QuickBooks Online is ideal for flexibility and mobility, but it has some limitations compared to the Desktop Premier Contractor Edition. For instance:
- Online lacks some advanced reports like committed costs and WIP summaries.
- Desktop offers more granular management of estimates vs. actuals.
Larger firms with complex needs may benefit from the more powerful features in QuickBooks Desktop. However, for most small to mid-sized contractors, QuickBooks Online offers sufficient functionality—especially when enhanced with the right apps.
Setting Up Project Accounting in QuickBooks Online
Enabling the Projects Feature
To activate project tracking:
- Navigate to Settings (the gear icon in the upper right).
- Select Account and settings.
- Click the Advanced tab.
- Find the Projects section and toggle it on.
- Click Save.
Once enabled, you can start creating and managing projects under the Projects menu on the dashboard.
Best Practices for Accurate Job Costing
To make the most of project accounting in QuickBooks Online:
- Create a new project for each client job, even for repeat clients.
- Link all related transactions (invoices, expenses, time logs) to the correct project.
- Set up detailed products and services lists with associated income and expense accounts.
- Include labor rates and item costs in product/service definitions to automate cost tracking.
- Regularly review your Project Profitability report to identify potential issues early.
Trends in Project Accounting and QuickBooks Adoption
Cloud Adoption in the Construction Industry
The construction industry’s shift toward digital transformation is fueling increased adoption of cloud-based tools like QuickBooks Online. These solutions enable:
- Remote collaboration between office and field staff
- Real-time job updates and financial tracking
- Secure storage of invoices, estimates, time logs, and more
Cloud accounting also reduces IT overhead and makes it easier for business owners to access financial data anytime, anywhere.
Growing Demand for Mobile and Real-Time Tools
Contractors, architects, and service professionals are increasingly relying on mobile solutions to manage operations from job sites. QuickBooks Online integrates with numerous field apps, supporting functions such as:
- On-site time tracking and approvals
- Project updates and change orders
- Direct photo uploads and document sharing
This demand for mobility strengthens QuickBooks Online’s position as a modern solution for project accounting.
Conclusion
Is QuickBooks Online Right for Your Project Accounting Needs?
QuickBooks Online offers a flexible, accessible way for contractors and service businesses to manage project-related finances. With features like the Projects dashboard, job costing reports, and mobile app integrations, it supports essential workflows in a mobile, cloud-based environment.
That said, companies with advanced billing and reporting needs may consider third-party enhancements or explore QuickBooks Desktop Premier Contractor Edition. For the majority of small to medium-sized firms, QuickBooks Online strikes the right balance of functionality and ease of use.
Frequently Asked Questions (FAQ)
Can I track labor costs by employee in QuickBooks Online?
Yes, when integrated with QuickBooks Time, you can track labor cost per employee and assign it to specific projects.
What reports help evaluate project profitability?
Key reports include the Profit & Loss by Project, Time Cost by Employee or Vendor, and Unbilled Time and Expenses reports.
Do I need third-party apps to manage construction projects?
Not necessarily. QuickBooks Online covers basic needs, but apps like Buildertrend and Knowify add features like WIP reporting, schedule tracking, and subcontractor management for advanced construction workflows.
What’s the difference between QuickBooks Online and Desktop for contractors?
QuickBooks Online is cloud-based, mobile-friendly, and supports third-party apps. Desktop Premier Contractor Edition offers more robust features like committed cost tracking and complex job costing reports.