Adjusting accounting to include direct labour in COGS for a construction company

So far in QuickBooks Desktop Premier Contractor Edition we've been recording all payroll as expenses. After some research and testing I think we should be recording direct labour (on jobsites) as COGS and indirect labour (office/admin etc) as an expense. 

I've created a Direct Labour COGS account and have adjusted our direct labour service items to reflect that account as the cost account, however this change isn't reflected in historical transactions. I'd like it to be reflected historically so that all our reporting for this year is consistent. 

Answer

Hi, you'll have to make an entry to move those costs from expense to COGs. I recommend using the method whereby you move the expenses on a Bill rather than with a journal entry. You'll be entering a negative to the expense account, and setting up the equivalent as a positive using the same item or account if you're not using Items as you'll be using in the future. 

The Bill will be zero total, and you can use a Vendor name that indicates what you're doing. For example, you could set up a name like COGs adjustments. You want to be able to clearly identify what happened when you're reviewing the General Ledger in a year or two. You might want to do it by pay period or by month, whatever suits your needs.

Let me know if this helps.

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Eileen Reppenhagen , TaxDetective
AllStar

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