Construction bookkeeping has its own language. If your bookkeeper doesn’t know these terms — or uses them incorrectly — it’s costing you money. This construction bookkeeping glossary defines every key financial term contractors in Los Angeles and Southern California need to know. Bookmark it. Share it. And if you want a bookkeeper who already knows all of this cold — call Bookkeeping Champs at (818) 679-4451.
A
Accounts Payable (AP)
Money your construction company owes to vendors, suppliers, and subcontractors for goods and services received but not yet paid. Proper AP management ensures you capture early payment discounts, maintain good subcontractor relationships, and don’t miss payment deadlines that could trigger lien claims against your projects.
Accounts Receivable (AR)
Money owed to your company by clients for work completed but not yet collected. In construction, AR includes progress billings outstanding, retainage receivable, and approved change orders not yet invoiced. Slow AR collection is one of the biggest cash flow killers in construction.
AIA Billing (G702/G703)
The American Institute of Architects standard billing forms used on most commercial construction projects. The G702 is the Application and Certificate for Payment (the cover sheet showing total contract value, work completed, stored materials, retainage, and net payment due). The G703 is the Continuation Sheet breaking down the Schedule of Values by line item. Most commercial GCs and developers require AIA billing from contractors and subcontractors.
Allowance
A budgeted amount included in a contract for items not yet fully specified (e.g., “flooring allowance: $8,000”). If the owner selects flooring that costs more than the allowance, the difference becomes a change order. Allowances must be tracked carefully in job costing to avoid surprise billing disputes at project completion.
As-Built Costs
The actual documented costs of completing a construction project, as opposed to estimated or budgeted costs. As-built cost records are essential for future estimating, change order support, and cost-plus contract billing.
B
Backcharge
A charge from a GC to a subcontractor (or from an owner to a GC) to recover costs incurred due to the other party’s failure or defective work. Example: If an electrician’s work fails inspection and the GC must re-mobilize, the GC may backcharge the electrician for the additional cost. Backcharges must be documented and tracked carefully in bookkeeping.
Backup Withholding
A federal tax requirement where payers must withhold 24% of payments to subcontractors who have not provided a valid W-9 or whose taxpayer identification number (TIN) cannot be verified. This is why collecting W-9s before the first payment is critical for contractors who use subcontractors.
Bid Bond
A surety bond submitted with a bid that guarantees the contractor will enter into the contract at the bid price if awarded. Typically 5–10% of the bid amount. If the contractor is awarded the bid but declines to execute the contract, the surety pays the bid bond amount to the owner to cover re-bidding costs.
Bonding / Surety Bond
A financial guarantee issued by a surety company on behalf of a contractor. Performance bonds guarantee project completion; payment bonds guarantee payment to subcontractors and suppliers. Surety companies evaluate contractor financials — including WIP schedules and balance sheets — to determine bond limits. Better books = higher bond limits = bigger projects.
Budget vs. Actual Report
A job cost report comparing the originally estimated cost for each line item to the actual costs incurred to date, plus the estimated cost to complete. This report is the most important management tool in construction financial management — it tells you in real time whether a job is on track or heading for a loss.
C
Cash Flow
The timing difference between cash coming in (progress payments, retainage releases) and cash going out (payroll, material purchases, sub payments). Construction is chronically cash-flow-negative early in projects because costs are incurred before billings are paid. Cash flow forecasting is essential for construction companies to avoid being profitable but broke.
Certified Payroll
A weekly payroll report (DIR Form A-1-131 in California) required for all public works construction projects. It certifies that workers were paid at least the applicable prevailing wage rate for their trade and classification. In California, certified payroll must be submitted weekly through the DIR’s eCPR online system. Non-compliance carries penalties of $100/day per violation and can result in debarment from future public works bidding.
Change Order
A written amendment to the original construction contract adding, deleting, or changing scope, price, and/or schedule. Change orders can be additive (additional work), deductive (work removed), or zero-cost (schedule change only). Untracked change orders are one of the biggest sources of lost profit in construction — every change order must be approved in writing and entered into job costing before work begins.
Chart of Accounts
The master list of all financial accounts in your accounting system, organized by account type (assets, liabilities, equity, income, expenses). A construction-specific chart of accounts includes accounts for retainage receivable, retainage payable, work-in-progress, job cost categories (labor, materials, subcontractors, equipment, other direct costs), and overhead expenses. Using a generic chart of accounts for a construction company produces inaccurate, misleading financial statements.
Completed Contract Method (CCM)
An accounting method where all revenue and expenses from a project are recognized only when the project is substantially complete. Used primarily by smaller contractors (under the gross receipts threshold) or for short-duration projects. Can create large swings in reported income from year to year. Compare to Percentage of Completion Method.
Conditional Lien Waiver
A lien waiver that releases lien rights only upon the condition that the payment clears. A conditional waiver can be exchanged simultaneously with a check — if the check bounces, the lien rights are not released. In California, there are four statutory lien waiver forms: conditional progress, unconditional progress, conditional final, and unconditional final.
Cost Code
A numerical or alphanumeric code assigned to specific types of construction work for job costing purposes (e.g., 100-Earthwork, 200-Foundation, 300-Framing, 400-Rough MEP, 500-Exterior Finishes). Cost codes allow contractors to track labor, material, and subcontractor costs by work type — enabling analysis of which types of work are profitable and which aren’t.
Cost-Plus Contract
A contract where the owner agrees to pay the contractor’s actual documented costs plus a fee (either fixed or percentage). Cost-plus contracts require meticulous documentation of all project costs — every receipt, labor hour, and subcontractor invoice must be captured and reported. Poor bookkeeping on cost-plus contracts leads to billing disputes and lost recoveries.
CSLB (Contractors State License Board)
The California agency that licenses and regulates construction contractors. CSLB licenses are required for any construction work over $500 in California. License classes include Class A (General Engineering), Class B (General Building), and 44 C-class specialty licenses (C-10 Electrical, C-20 HVAC, C-36 Plumbing, C-39 Roofing, etc.). Maintaining proper financial records is a CSLB requirement and is necessary to support license renewal and respond to complaints.
D
DIR (Department of Industrial Relations)
The California state agency that administers prevailing wage laws and public works contractor registration. All contractors and subcontractors performing public works in California must register with the DIR annually ($400 fee) and submit certified payroll reports through the DIR’s eCPR system for every public works project.
Draw / Draw Request
A payment request submitted by a contractor to the owner or lender for work completed during a billing period. On construction loan projects, draws are reviewed by the lender’s inspector before payment is approved. On commercial projects, draws are typically submitted on AIA G702/G703 forms monthly. Draw management — timing, documentation, and approval tracking — is a critical bookkeeping function.
E
Earned Revenue
In percentage-of-completion accounting, earned revenue is the portion of total contract revenue that has been “earned” based on the percentage of work completed to date. Earned revenue = (% complete) × (total contract value including approved change orders). The difference between earned revenue and billings to date determines your over/under-billing position.
eCPR
The California DIR’s online system for submitting certified payroll reports (Electronic Certified Payroll Reporting). All contractors and subcontractors on California public works projects must submit weekly certified payroll reports through eCPR. The system accepts XML uploads from payroll software or manual online entry.
Estimated Cost to Complete (ETC)
The projected remaining cost to finish a construction project from the current point. ETC is a critical WIP schedule component — it’s used to calculate percentage of completion and determine whether a project will come in on budget or result in a loss.
F
Final Lien Waiver
A lien waiver exchanged upon final payment that releases all lien rights for the entire project. Conditional final waivers release rights upon payment clearing; unconditional final waivers release rights immediately upon signing. Never sign an unconditional final waiver before you have confirmed cleared payment.
Fringe Benefits (Prevailing Wage)
The benefit portion of the prevailing wage rate (health insurance, pension, vacation, training) that must be paid in addition to the basic hourly rate on California public works projects. Fringe benefits can be paid into a bona fide benefit plan or paid directly to workers as cash. Proper fringe benefit tracking is essential for certified payroll compliance.
G
General Conditions
Project overhead costs that cannot be attributed to a specific trade or work item but are necessary to complete the project — superintendent labor, temporary utilities, job site trailer, safety equipment, dumpsters, permit fees. General conditions are typically listed as a separate line item in the Schedule of Values and billed monthly as a percentage of work complete.
Gross Profit / Gross Margin
Revenue minus direct job costs (labor, materials, subcontractors, equipment). Gross profit is what’s left to cover overhead and generate net profit. In construction, healthy gross margins typically range from 15–35% depending on trade, project type, and market. If your gross margin is below 15%, either your pricing is wrong or your costs are out of control — job costing reveals which.
J
Job Cost Report
A financial report showing all costs incurred on a specific project, typically broken down by cost code or cost category (labor, materials, subs, etc.). A good job cost report also shows the original estimate, approved change orders, estimated cost to complete, and projected profit/loss at completion. The single most important report for managing construction profitability.
Job Costing
The process of tracking all costs and revenue associated with a specific construction project. Job costing allows contractors to compare actual costs against estimates, identify cost overruns in real time, analyze profitability by job type, and improve future estimating accuracy. Without job costing, a contractor has no idea which projects are actually making money.
L
Lien (Mechanic’s Lien)
A legal claim filed against a property by contractors, subcontractors, or material suppliers who have not been paid for work or materials provided. In California, licensed contractors have strong lien rights but must follow strict notice and timing requirements (20-day preliminary notice, recording deadline of 90 days after completion) to preserve those rights.
Lien Waiver
A document signed by a contractor, subcontractor, or supplier waiving their right to file a mechanic’s lien in exchange for payment. California has four statutory lien waiver forms that must be used for California construction projects: Conditional Progress Payment, Unconditional Progress Payment, Conditional Final Payment, and Unconditional Final Payment. Using non-statutory forms can create legal complications.
N
1099-NEC
The IRS form used to report non-employee compensation paid to independent contractors and subcontractors. Contractors must issue a 1099-NEC to any subcontractor or sole proprietor paid $600 or more during the calendar year. Forms must be provided to recipients by January 31 and filed with the IRS by January 31. California FTB also requires 1099-NEC filing.
Notice to Owner (Preliminary Notice)
A written notice that California subcontractors and material suppliers must serve on the owner, general contractor, and construction lender within 20 days of first furnishing labor or materials to preserve their lien rights. Without a timely preliminary notice, a subcontractor’s lien rights may be severely limited. GCs typically do not need to file preliminary notice on their own projects.
O
Overbilling / Over-Billed
The condition where a contractor has billed more than the earned revenue on a project based on percentage of completion. Overbilling is a liability — the contractor has received more cash than the work justifies, and if the project is terminated, the excess must be repaid. Banks and surety companies view large overbilling positions as a red flag.
Overhead
Operating costs not directly attributable to specific projects — office rent, administrative salaries, insurance, vehicles not billed to jobs, software subscriptions, marketing. Overhead must be covered by gross profit on projects. If gross profit doesn’t exceed overhead, the company operates at a loss even if individual jobs appear profitable.
P
Payment Bond
A surety bond that guarantees a contractor will pay all subcontractors, suppliers, and workers on a project. Required on all California public works contracts over $25,000 (federal threshold is $150,000). If the GC fails to pay subs or suppliers, those parties can make claims against the payment bond.
Performance Bond
A surety bond guaranteeing that a contractor will complete a project according to the contract terms. If the contractor defaults, the surety must either arrange for project completion or pay the owner the cost of completion up to the bond amount. Performance bonds are required on most public works projects and many large commercial projects.
Percentage of Completion Method (PCM)
An accounting method where revenue and expenses are recognized proportionally as project work is completed, rather than all at once upon completion. PCM is required for most large contractors (over IRS gross receipts thresholds) and produces the most accurate picture of financial performance on long-term projects. Requires monthly WIP schedule preparation.
Prevailing Wage
The minimum wage rate (including fringe benefits) that must be paid to construction workers on California public works projects. Prevailing wage rates are set by the DIR for each craft/trade and each county, and are updated periodically. Los Angeles County and Ventura County have different prevailing wage rates. Failure to pay prevailing wages carries back-pay liability plus penalties.
Progress Payment
An interim payment made to a contractor during the course of construction, typically based on the percentage of work completed during the billing period. Progress payments are the primary cash flow mechanism for construction companies — the timing and accuracy of progress billings directly determines cash position throughout a project.
Q
QuickBooks for Contractors
A version of QuickBooks Desktop (now called QuickBooks Desktop Contractor) specifically designed for construction companies. Includes job costing, progress invoicing, estimate vs. actual reports, and a construction-specific chart of accounts. Generally considered to have more construction-specific features than QuickBooks Online, though QBO Plus/Advanced with Projects is a strong cloud alternative for smaller contractors.
R
Retainage
A percentage (typically 5–10%) of each progress payment withheld by the owner or GC as security for project completion. On the receiving end: retainage held by owners from your billings is Retainage Receivable (an asset). On the paying end: retainage withheld from subcontractors is Retainage Payable (a liability). Both must appear on the balance sheet — NOT on the P&L — for accurate financial reporting. California law limits retainage to 5% on most private projects and has specific release timing requirements.
Revenue Recognition
The accounting principle determining when revenue is recorded on the income statement. For construction, this is either the Percentage of Completion Method (revenue earned as work progresses) or the Completed Contract Method (revenue recognized when the project is substantially complete). The choice of revenue recognition method significantly impacts reported income and tax liability.
S
Schedule of Values (SOV)
A breakdown of the total contract price into individual line items representing portions of the work (e.g., Foundation: $45,000; Framing: $80,000; Electrical Rough: $35,000). The SOV is used as the basis for AIA progress billing — each billing period, the contractor certifies the percentage of each line item completed and bills accordingly. A well-structured SOV protects cash flow throughout a project.
Section 179 Deduction
A federal tax provision allowing businesses to immediately deduct the full purchase price of qualifying equipment (including vehicles, machinery, and software) in the year of purchase, rather than depreciating it over several years. For 2025, the Section 179 limit is $1.16M. This is one of the most valuable tax deductions available to contractors who purchase equipment and vehicles.
Stored Materials
Materials purchased and delivered to the job site (or stored off-site with documentation) but not yet installed. On AIA billing, stored materials can be billed in the current draw even though they haven’t been incorporated into the work. Proper stored materials billing requires documentation (invoices, photos, insurance) and can significantly improve cash flow on material-intensive projects.
Subcontractor
A contractor hired by a general contractor (or another subcontractor) to perform a specific portion of construction work. In California, subcontractors performing licensed work must hold the appropriate CSLB license and carry proper insurance. GCs are responsible for verifying sub credentials and managing the financial relationship — including W-9s, COIs, lien waivers, retainage, and 1099s.
T
Time and Materials (T&M) Contract
A contract where the owner pays for actual labor hours (at agreed billing rates) plus the actual cost of materials (often with a markup). T&M contracts provide flexibility but require meticulous time tracking and material documentation to support billing. Without proper records, T&M billings are frequently disputed.
Topical Authority
In SEO, the concept of a website being recognized as a comprehensive, authoritative source on a specific topic. Construction bookkeeping websites with topical authority rank higher for related searches. Building topical authority requires comprehensive coverage of all sub-topics within construction bookkeeping — which is exactly what Bookkeeping Champs has built.
U
Underbilling / Under-Billed
The condition where a contractor has billed less than the earned revenue on a project based on percentage of completion. Underbilling means you’ve done more work than you’ve collected for — essentially giving the owner a free loan. While less alarming than overbilling from a surety perspective, chronic underbilling creates cash flow shortfalls that can threaten business viability.
Unconditional Lien Waiver
A lien waiver that immediately and unconditionally releases lien rights upon signing — regardless of whether payment actually clears. Never sign an unconditional waiver before confirmed payment has cleared your bank account. An unconditional waiver signed before payment clears leaves you with no lien rights if the check bounces.
W
W-9 Form
The IRS form used to collect the name, address, and taxpayer identification number (TIN or EIN) from contractors and subcontractors. GCs must collect a valid W-9 from every subcontractor before the first payment to avoid backup withholding requirements (24% federal withholding) and to support year-end 1099-NEC filing.
WIP Schedule (Work-in-Progress Schedule)
A financial report showing the status of all active construction projects — contract value, costs to date, estimated cost to complete, percentage complete, earned revenue, billings to date, and over/under-billing position for each job. The WIP schedule is the most important financial report unique to construction. Banks require it for construction lines of credit; surety companies require it to underwrite bonds; sophisticated project owners use it to evaluate contractor financial health.
Workers’ Compensation
Insurance that covers medical expenses and lost wages for employees injured on the job. In California, workers’ comp is mandatory for all employers, including contractors with even one employee. The construction industry has higher workers’ comp rates than most industries due to job site injury risk. Misclassifying employees as independent contractors to avoid workers’ comp is one of the most aggressively prosecuted violations in California construction — penalties include criminal charges.
Working Capital
Current assets minus current liabilities — the measure of a contractor’s short-term financial health and liquidity. Surety companies use working capital as a primary metric for bonding capacity. The typical rule of thumb: a contractor can support roughly 10x their working capital in bonded work. Building and maintaining working capital is one of the most important financial management goals for growing contractors.
Your Bookkeeper Should Know All of This
If you’re reading this glossary and thinking “my bookkeeper doesn’t know half of these terms” — that’s a problem. Construction bookkeeping is a specialty. Using a general bookkeeper for your construction company is like using a general practitioner for heart surgery. You need a specialist.
Bookkeeping Champs knows every term in this glossary — and more importantly, we apply them correctly to your books every single month. We serve contractors throughout Los Angeles, San Fernando Valley, Ventura County, Santa Clarita, Burbank, Glendale, Santa Barbara, and all of Southern California.
📞 Call (818) 679-4451 for a free consultation. Let’s talk about what your construction company’s bookkeeping is missing.